Cost Segregation and Fixed Assets

Cost Segregation and Fixed Assets

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Cost Segregation and Fixed Asset studies reclassify assets to maximize personal property, optimizing depreciation deductions and resulting in substantial cash flow benefits. A cost segregation study typically focuses on specific real estate assets, while fixed asset studies include all of the assets a client owns. Our team combines a detailed invoice review of the client's documentation with the engineering review included in cost segregation and fixed asset studies.

If you have acquired business properties through purchase, new construction, renovation or leasehold improvements, you may benefit from cost segregation. This includes both new and existing properties. Commonly overlooked opportunities include:

  • Hotels
  • Offices
  • Manufacturing Facilities
  • Retail Units
  • Assisted Living Facilities
  • Tenant Improvements
  • Multifamily Units

The IRS sees cost segregation as a legitimate method for determining the useful life of building components. This has been held up in various court decisions and IRS publications. The IRS came out with an Audit Guide which not only confirms this position, but also lists a number of relevant court cases.

You may qualify for cost segregation and fixed asset studies if you are:

  • a company with significant real estate holdings
  • a company who renovates or expands their operations on a regular basis
  • a real estate investor
  • a company who has studies that can be performed on a retroactive basis for assets placed in service in prior tax years (A 481(a) or catch-up adjustment allows a taxpayer to receive substantial benefit with their next tax filing. The catch-up adjustment brings accelerated depreciation benefits from prior years into the current year as one single adjustment. The result is often a substantial reduction of current year tax liability.)

There isn't an easy answer to know for sure if your property is large enough for a study to make sense because it depends on many variables, including the type of property and your situation as a taxpayer. In most cases, properties under $500,000 do not make sense unless they are held in a portfolio of assets. Another situation where a study may not make sense would be where there is a plan to flip the property in 1-3 years. Some of these limitations are based on perception. An expert should be consulted prior to deciding if a study should move forward or not.

Cost Segregation Services

  • 179D - (The IRS provides other incentives for building owners. These include 179D energy efficient building deductions and tax credits for solar and other alternative energy systems.)
  • 263a
  • Cost Segregation
  • Fixed Asset Review
  • Rehabilitation Tax Credit

Information Needed To Get Started

  • Property Address
  • Tax Fixed Asset Listing
  • Purchase Price (acquired property)
  • Construction Budget (new construction)
  • Depreciation Schedule
  • Renovation Summary with Costs (if applicable)

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