Increase your company’s cash flow with a cost segregation study
If you have:
- A new building under construction
- An existing building undergoing renovation or expansion
- A leasehold improvement or fit out
- A previously owned property that you have acquired
Then your building may be a candidate for a cost segregation study, which can help you save on taxes and improve your company’s cash flow.
Is your building a candidate for a cost segregation 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.
What qualifies for a study?
To be eligible, buildings have to have been purchased, constructed, expanded or remodeled since 1986. To be cost effective, a cost segregation study typically should be conducted on buildings worth $500,000 or more. The most useful studies are on buildings still under construction.
The most common types of buildings:
- Amusement parks
- Apartment complexes
- Automobile dealerships
- Dental offices
- Distribution centers
- Fast food restaurants
- Food processing facilities
- Manufacturing plants
- Medical centers
- Nursing homes
- Office buildings
- Retail chains/franchises
- Shopping malls
- Sports stadiums
What are the benefits of a study?
- Depreciation is increased in earlier years, resulting in lower federal and state income tax and an increase in cash flow.
- If you own a building placed in service as long ago as 1986, you can take a catch-up deduction in the current year for all of the depreciation missed in prior years.
- A properly-documented cost segregation generates an audit trail which, if needed, can help resolve IRS queries at an early stage.
The IRS has standards for what constitutes a properly performed and documented cost segregation study, so its important to work with someone who can provide an acceptable study using the appropriate methodology which maximizes the benefits to you.
HK is a Top 100 CPA and business consulting firm in the U.S. and the largest Iowa-based CPA firm (Accounting Today, 2020). As one of the nation’s largest and most respected professional service firms, we serve clients in all 50 states with value-added, forward-thinking, effective, and timely solutions across more than 40 service lines. For over 70 years, privately-held organizations, fortune 500 multi-nationals, franchisor organizations, individuals and nonprofits have experienced Honkamp Kruegers’ promise of world-class customer service and innovative solutions.