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Cost Segregation Studies

A cost segregation study is an analysis of the capital expenditures or investment made in a residential or commercial building, such as a manufacturing facility, apartment building, restaurant, medical office, retail store or office building.

Cost segregation studies can potentially save property owners thousands of dollars over multiple years. The savings comes through properly allocating costs between real property and personal property for tax depreciation.

Direct benefits of cost segregation studies:

• Reduce corporate and individual income taxes
  
• Reduce real estate taxes by shifting value from real property to personal property
  
• Reduce personal property taxes by accelerating the write-down of personal property
  
• Increase corporate net income (after tax) by reducing the corporation's effective tax rate
  
• Help provide corporations and investors with increased cash flow
  
• Help investors maximize the tax credits they can claim
  
• Provide investors with additional cash to reinvest in new projects
  
• Allow a corporation or investor to claim "catch-up" depreciation on assets that have been previously misclassified as real property
  
• Help investors and corporations manage their investments in capitalized assets

Not all buildings are eligible for these studies, but property owners should call our local office to find out if their buildings qualify. View a case study to see a specific example of the potential cost savings.

How are they performed?

The first part of a cost segregation study involves determining or segregating the investments in, or the costs of, a particular asset or group of assets. Costs to be segregated include:

• Actual direct costs of construction or acquisition.
  
• Indirect or soft costs including, but not limited to, capitalized interest, legal, engineering, appraisal, design, construction management, and architectural fees.

The second step in preparing the study involves categorizing the assets based on the appropriate depreciable lives for income tax purposes.

To speak to a CPA about a cost segregation study, please contact your local office or use our information request form.