Cost Segregation Studies: Save on Taxes through Cost Segregation Studies
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What are the benefits of a cost segregation study?
A cost segregation study will normally result in increased depreciation benefits for federal income tax purposes. Basically, the faster your assets will depreciate, the more significant is your depreciation deduction. In turn, your depreciation deduction will result in lower taxable income. And a lower taxable income means less tax liabilities. In other words, a cost segregation study can serve as a tool to save money on your taxes.
A cost segregations study will typically:
- Improve your company’s short-term cash flow
- Identify costs that you can expense
- Create a sound record for IRS defense
What is a cost segregation study?
According to the IRS Audit Technique Guide, a quality cost segregation study:
- Identifies and classifies a company’s assets into property classes (furniture, land, equipment, office building, etc.) and categories (short-lived and long-lived property)
- Explains the rationale for classifying assets ( personal or real property)
- Substantiates the cost basis of each asset
- Reconciles total allocated costs to total costs
Do I need to conduct a cost segregation study?
You should consider a cost segregation study, if you are:
- Building a new facility
- Purchasing an existing building
- Renovating an existing facility
Also, facilities such as shopping centers, office parks, power centers, manufacturing facilities, industrial buildings, office buildings that have been in service since 1986 may also qualify for cost segregation studies.
As you consider ways to minimize your current taxes, consider a cost segregation study at or near the top of the list.