Co-authored by: Gian Pazzia, CCSP, Principal at KBKG and Tom Jackson, Director at DZH Phillips
Cost Segregation is a strategic tax savings tool that allows companies and individuals who have constructed, purchased, expanded, or remodeled any kind of real estate to increase cash flow by accelerating depreciation deductions and deferring federal and state income taxes. Numerous real estate and tax professionals have utilized Cost Segregation to defer millions of tax dollars creating a competitive advantage and new opportunities for growth.
Nearly any type of commercial property including (but not limited to) office and industrial buildings, apartment complexes, retail centers, manufacturing facilities, restaurants, auto dealerships, hotels and medical facilities can benefit from a Cost Segregation study. Owners who have purchased or constructed a facility since January 1, 1987, with depreciable costs in excess of $750,000, or who have made leasehold improvements in excess of $400,000, will likely benefit from having a Cost Segregation study performed. The taxpayer must also plan on retaining the property for the next few years (or plan on exchanging) and have net income that is currently taxable. While the IRS puts no limitation on the number of years a building owner is allowed to go back and reclaim the depreciation lost by not utilizing a cost segregation study (Rev. Proc. 2002-19), it is not advantageous to go back further than 1987, as most of the building has already been depreciated.
Working as a team, your CPA firm and a Cost Segregation professional can provide you with a unique combination of construction estimating and tax expertise to properly dissect construction information, compute estimates, and identify subcomponent costs. It is advisable to engage a firm that is certified with the American Society of Cost Segregation Professionals (ASCSP) with expert ASCSP members that have the designation of Certified Cost Segregation professional (CCSP). ASCSP has been established as a non-profit corporation in response to the growing need for education, credentials, technical standards and a Code of Ethics within the cost segregation industry.