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Cost Segregation
Significant Tax Savings Based on Construction Expenditures
An SC&H cost segregation study can enable your company to minimize its federal, state, and local taxes.
What is a cost segregation study?
A cost segregation study is an in-depth analysis of the costs incurred to acquire, build, renovate, or expand a real estate holding. Commonly, such costs are capitalized and depreciated for income tax purposes as real property, and depreciated over 39 years (non-residential real property) or 27.5 years (residential real property). A cost segregation study identifies those costs that should instead be classified as personal property (generally depreciable over 3 to 7 years) or land improvements (depreciable over 15 years).
How can a taxpayer benefit from a cost segregation study?
Assuming an effective tax rate of 40%, the net present value of the increased cash flow from a cost segregation study using a discount rate of only 6% can exceed $200,000 for every $1,000,000 of property reclassified from 39-year real property to personal property categories.
In addition, a properly coordinated cost segregation study can be helpful in minimizing non-income taxes, such as:
- Property taxes
- Sales/use taxes
- Transfer taxes
Who benefits from a cost segregation study?
Owners and lessors of most types of property can reap significant tax savings from a cost segregation study. The acceleration of depreciation deductions for income tax purposes, together with the non-income tax savings that a study produces, can increase your cash flow and improve your bottom line.
SC&H Group provides additional tax services including:
Business Income Tax ∙ Corporate Tax Services ∙ State & Local Tax ∙ Estate & Trust Services ∙ Personal Income Tax ∙ Investment Banking and Strategic Planning
For more information about our Cost Segregation practice, contact us.
