Cost Segregation for Tax Savings

Cost Segregation Services are IRS-sanctioned techniques allowing businesses to accelerate depreciation on their facilities. In short, Cost Segregation Services and Cost Segregation Studies can substantially reduce income taxes by increasing depreciation allowances. However this process is a little more complicated than simply deciding to reallocate assets or claim a shorter depreciation period and then running the numbers yourself. According to IRS guidelines, a properly performed cost segregation study is based on a detailed engineering analysis. It requires a team of architects, engineers and accountants to be effective.

Show Me The Tax Savings

The following table details the results of a Cost Segregation Study for a company with annual income of $10M.

No Cost Segregation StudyAfter Cost Segregation Study
Annual Income$10,000,000$10,000,000
Operating Expenses$5,000,000$5,000,000
Depreciation Expense$1,000,000$3,000,000
Net Income$4,000,000$2,000,000
Taxes (40%)$1,600,000$800,000

In this example, current year savings after a Cost Segregation Study is $800,000. This savings can be reinvested in the business or put to use in other investment activity.

So are the savings worth the effort? Well, typically 25 to 40 percent of the assets within a property can be reclassified. This allows you to recover costs over a shorter period of time, which in turn creates a substantial tax savings.

Sec. 1250 Based Assets

Cost segregation studies analyze Sec. 1250 based assets, which are bound to a traditional 39-year depreciation group, and reassigns specific eligible assets into Sec. 1245 property which most often enjoys a three, five or seven year depreciation. The cost segregation process, based on an engineering study and in accordance with strict IRS audit guidelines, often reduces taxable income thereby resulting in an increase in cash flow. These newly freed funds may be utilized for purposes that are more productive.

Isn’t it time you got a preliminary cost segregation feasibility study with proprietary software designed to analyze your properties and their depreciation schedule options? Call us to schedule a more in-depth discussion of this service today. Of course, there will be no fee associated with this meeting.


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