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Cost Segregation
 A cost segregation study identifies, separates, and classifies the costs associated with a building, an improvement or an addition into various depreciable lives. By performing a cost segregation study, real estate owners can increase cash flow and generate tax benefits by accelerating depreciation on their property. Our professionals at Konowitz, Kahn & Company, P.C. analyze the building blueprints, mechanicals, and detailed cost records to segregate the structural components related to the operation and maintenance of the building from components related to the equipment used in the building. Once this detailed analysis is completed, a report is generated.
Segregating Costs into Various Depreciable Lives Increases Cash Flow
Typically, commercial buildings and improvements are depreciated over 39 years. However, if you classify part of the cost of the building to 5, 7, or 15-year-type property, the owner reduces taxes in the earlier years, thereby increasing cash flow for that period.
Cost Segregation Studies Generate Permanent Savings
Assume a commercial building with a cost of $2,000,000 is typically depreciated over 39 years. If $400,000 is segregated as 7-year property and $150,000 is segregated as 15-year property, you can potentially save $100,0000 on a present-value basis by investing the tax savings received in the earlier years over the remaining life of the building. Tax law changes made by the “Jobs and Growth Tax Relief Reconciliation Act of 2003” can mean additional savings for real estate owners.
The following properties, whether purchased, constructed or expanded, are good candidates for cost segregation studies:
- Manufacturing Facilities
- Medical Offices & Facilities
- Office Buildings
- Research & Development Facilities
- Hotels and Restaurants
Other structures, including apartment buildings and retail centers, can be good candidates. It may also be possible to prepare cost segregation studies for buildings placed into service in prior years.
If you have purchased, constructed, substantially improved, or expanded a building, a cost segregation study could benefit you. For more information on the Konowitz, Kahn Cost Segregation Study, the benefits of cost segregation, or to have a complimentary estimated savings spreadsheet produced for your facility, please contact: Mario Cherubino, Jr., Principal and Cost Segregation Specialist, at 203-756-7426 or via e-mail at mario@konowitzkahn.com.
Read more about Cost Segregation in Our Articles.
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