Does Cost Segregation Apply to Both New Construction & The Purchase of An Existing Building? Yes, Cost Segregation applies to both new construction and the purchase of existing buildings; however, the approach and the documentation used differ slightly. In both cases, the goal remains the same: to reclassify eligible assets into shorter depreciation periods to maximize your tax savings.
For new construction, Engineered Tax Services (ETS) conducts the study as soon as construction is completed, analyzing detailed documentation like architectural plans and construction invoices. This often provides abundant documentation for clarity. For the purchase of an existing building, ETS focuses on analyzing the building and its components at the time of purchase and allocating costs accordingly, without needing to know the entire history of the building's original construction.
Cost Segregation: New vs. Existing Property
- Applicability: Cost Segregation applies to both new construction and the purchase of existing buildings.
- Goal: The goal in both scenarios is to reclassify eligible assets into shorter depreciation periods (e.g., 5, 7, 15 years) to maximize tax savings.
New Construction
- Timing: Study is conducted as soon as construction is completed.
- Documentation Focus: Analysis relies on architectural plans, construction invoices, and other detailed documents.
- Advantage: Typically has more documentation available to work with, providing additional clarity.
Existing Buildings
- Timing: Study focuses on the property and its components at the time of purchase.
- Documentation Focus: Analysis looks at the building's current condition and allocates the purchase price costs accordingly.
- History Need: There is no need to know the entire history of the building's original construction.
