Considerable tax and cash flow benefits can be realized by conducting a cost segregation study. It is important to choose a firm that is thoroughly knowledgeable about the tax law as it relates to depreciation and cost recovery rules. Honkamp Krueger has experienced staff who can perform your cost segregation study and help you realize the benefits.
Qualifications for a study
You may be a candidate for a cost segregation study if you have:
- new buildings under construction
- existing buildings undergoing renovation or expansion
- leasehold improvements or “fit-outs”
- previously owned properties that you have acquired
Definition of a study
A cost segregation study is a comprehensive analysis of constructed or acquired commercial buildings to identify hidden potential for accelerating tax depreciation deductions. Depending on the type of building and special design features, 15 – 50% of costs can generally be reclassified to shorter depreciable lives.
As an owner of a newly constructed or recently acquired property, you will benefit from increased depreciation in earlier years resulting in lower federal and state income tax and an increase in your cash flow. If you own a building placed in service as long ago as 1986, you may also benefit from a cost segregation study because you can take a catch-up deduction in the current year for all of the depreciation missed in prior years.
Benefits of a study
You will experience:
- increased depreciation in earlier years and/or one time catch up in one year
- deferred federal and state income taxes
- increased cash flow available for your operations and reinvestment as a result of the deferral of taxes
IRS standards for a study
The IRS has standards for what constitutes a properly performed and documented cost segregation study, and it’s important to work with someone that can provide an acceptable study that uses the appropriate methodology and maximizes the benefit to you. Honkamp Krueger has knowledgeable and experienced cost segregation staff to conduct these types of studies.