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Cost Segregation

Cost segregation can improve cash-flow and the bottom line for building owners. MarksNelson partners with engineering firms to ensure shortest depreciation recovery periods.

Cost segregation can improve cash-flow and the bottom line for building owners.

  • Have you constructed a new facility?
  • Acquired an existing facility?
  • Renovated or expanded your current facility?

If you’ve answered yes to any of these questions then your organization may benefit from a cost segregation study.  A cost segregation study may improve your cash flow and bottom line.  They have become an increasingly valuable, but not commonly understood, tax strategy that should be considered by virtually every taxpayer who owns, is constructing, renovating or acquiring real estate.

What is Cost Segregation?

Cost segregation is a study that can help your business to: accelerate depreciation, increase current tax deductions, defer income tax and increase cash flow.  It is an engineering-based approach to identify assets within a building that can be reclassified into a much shorter depreciation recovery period than the building itself.

The tax benefits of cost segregation can be applied to various types of real estate: apartments, assisted living / nursing homes, auto dealerships, office buildings, restaurants, manufacturing buildings, hotels, medical buildings, retail space and others.

As part of each cost segregation study, through our association with an engineering firm, we help you to maximize your tax benefit by identifying, classifying and segregating the personal property components and land improvements of the building, resulting in depreciable lives of 5, 7 and 15 years using accelerated depreciation.

Proven Approach

The proven process that combines accounting and engineering:

  • Review tax depreciation schedules to identify areas of potential reclassification with emphasis on assets placed in service after 1987 with a tax life of 27.5 to 39 years.
  • Review invoices, construction cost details, blueprints and tour facilities in order to determine proper tax classification.
  • Make a determination regarding proper tax life and recalculate depreciation and the applicable 481(a) adjustment in accordance with relevant tax authority.
  • Prepare and draft Form 3115, if necessary.
  • Deliver documentation and calculations.
  • Provide road map for future purchases.

Through this process we will also consult with you regarding various tax issues on an as needed basis such as depreciation recapture and loss limitations that you may need to be aware of prior to completing a cost segregation study.

Meshing Accounting and Engineering

Cost segregation services require engineering expertise to perform them properly.  That’s why we have an association with an engineering firm.