What is a Cost Segregation Study? Cost Segregation is a lucrative tax strategy that enables commercial property owners to claim more deductions and lower their overall tax liability--- which yields immediate cash flow gains. The objective is to accelerate depreciation for tax purposes. Property Allocation Consultants, LLC., is a national company based in Huntington, New York that provides comprehensive engineered ‘cost segregation’
How does Cost Segregation Benefit?
New construction, remodeling, new real estate acquisitions can benefit from a cost segregation study. CSS accelerates depreciation (5 or 7 years) by frontloading ; tax liability is reduced and cash flow increased. All Commercial properties can benefit from a CSS including manufacturing, office complexes, shopping centers, hospitals and medical facilities, apartment buildings, casinos, hotel resorts, sports arenas, to name a few.
Modified Accelerated Cost Recovery System (MACRS), stipulates that newly acquired or constructed buildings be depreciated over 39 years on a straight-line basis. However, MACRS allows for the reallocation of a portion of the property into asset categories having shorter depreciable lives (e.g. 5, 7, and 15 years).
Property Allocation Consultants, LLC., has conducted Cost Segregation studies nationwide. Strictly adhering to IRS Guidelines, PAC employs the ‘Engineering Methodology’
Many companies claiming to do CSS do not use the ‘Engineeriing Methodogy’, but, instead use the less time-consuming ‘Residual Methodology.’
Objective of a Cost Segregation Study
A cost segregation highlights component cost for personal and real property providing ability to retire assets as renovation or replacement is needed. PAC adheres to the “IRS 13 Principle Elements of Quality.” We stand behind our reports which have never been audited. However, our audit support policy will protect you in the unlikely event of an IRS examination at no additional cost.
Case Study
A REIT purchased a Texas office building and engaged PAC to produce a cost segregation study. PAC engineers and architects performed a comprehensive inventory of the land, building, and ancillary improvements according to IRS guidelines. When evaluating their purchase decision, the client had estimated its first year depreciation allowance at $384,000 based on straight-line depreciation schedules. The PAC analysis identified significant opportunities to reclassify assets as personal property and land improvements, allowing the accelerated depreciation of those cost components over 5 & 15 years.
The RESULTS: Total 1st year depreciation deduction amount
$800,000
Total 1st year tax benefit (1st year depreciation x tax rate of 39%)
$312,000
To Obtain the Benefits of a CSS Commercial Property Owners would leave significant cash flow, reduced tax liability, recaptured depreciation (to 1987) and other IRS-sanctioned tax benefits on the table if a CSS is not a part of the overall tax strategy.
Property Allocation Consultants, LLC., is the nation's foremost Cost Segregation Study firm and our services are offered in all fifty states. Minimum qualifications are: Property Owners are taxpayers, Commercial Property valued at $1,000,000+, For-Profit entity, Planning to hold the property for more than one year, Commercial Property purchased or placed in-service after 1986, Older building remodeled or renovated since 1986, leasehold improvements of at least $1,000,000.
A CSS will analyze all costs as well as taxes to be incurred before purchase, construction or renovation of all Commercial real estate. The primary object of CSS is to identify all costs related to the construction that will qualify the Commercial Property for 'accelerated income tax depreciation.' CSS is not a tax shelter nor is it tax evasion. Done properly (by Property Allocation Consultants, LLC), advantages are as follows:
Considerable ROI on property not requiring insurance
Increased tax deductions for depreciation
Taxable income significantly reduced
Misclassified assets 'reallocated';
Increased rate of building and acquisition cost write-offs
Insurance costs reduced by reallocation of assets
Taxes 'deferred' on capital gains until sale of property
Real Estate property taxes REDUCED!
Federal Income tax is REDUCED! and Depreciation is accelerated
Determination between Real property and Personal property to allow write-offs--- (IRS.1250) & (IRS.1245)
Significant 'Cash-Flow' increases enable client to improve borrowing ability
Tax-deferred 1031 Exchange opportunity
Financial impact of repairs and renovations can be lessened by retiring components previously bound to the client building tax basis
The cost of conducting a Commercial Cost Segregation Study can be deducted as an expense in the year of the study.
Commercial Property Owners who have not yet explored this lucrative tax strategy can now increase the value in benefits to their collective tax portfolio by employing this 'secret' tactic the mega corporations have enjoyed for years.
Property Allocation Consultants, LLC., will make available Cost Segregation Study analysis for any Commercial Property in all fifty states. Our staff of engineers and architects travel throughout the country conducting CSS. For a complimentary CSS 'Feasibility Analysis' contact :
hkaahea@propertyallocationconsultants.com 888.617.0026 Ext. 107
