Buyer “Be Aware” of Cost Segregation Studies
As the economy is slowly beginning to show signs of improvement, more and more companies are once again considering building, renovating, or buying a building. Anyone who is looking to build, renovate, or buy should first consider the benefits of a cost segregation study.
A cost segregation study is an IRS approved approach that allows a taxpayer to identify, segregate, and reclassify assets that are currently classified as real property to shorter depreciable lives for federal and state income tax purposes.
The primary benefit of performing a cost segregation study is an immediate increase in cash flow due to reductions in federal and state tax liabilities achieved from accelerated depreciation.
Cost segregation studies are most commonly utilized during new construction, renovations, or acquisitions. In most situations, buildings constructed or purchased since 1994 have the best potential for tax savings.
The best time to begin a cost segregation study is when plans are drafted to purchase, build, remodel, or expand a building. If possible, the study should be completed in the year when the building is placed in service. However, cost segregation studies can be performed on properties that have been placed in service in prior years.
Due to the complexities of cost segregation studies, the IRS mandates that the study be performed by professionals from both the engineering and accounting disciplines.