Real State Cost Segregation

What is Real State Cost Segregation?

Under United States tax laws and accounting rules, cost segregation is the process of identifying personal property assets that are grouped with real property assets, and separating personal assets for tax reporting purposes.

According to the American Society of Cost Segregation Professionals, a cost segregation is “the process of identifying property components that are considered “personal property” or “land improvements” under the federal tax code.”

Why do Real State Cost Segregation?

 cost segregation study identifies and reclassifies personal property assets to shorten the depreciation time for taxation purposes, which reduces current income tax obligations. Personal property assets include a building’s non-structural elements, exterior land improvements and indirect construction costs. The primary goal of a cost segregation study is to identify all construction-related costs that can be depreciated over a shorter tax life (typically 5, 7 and 15 years) than the building (39 years for non-residential real property). Personal property assets found in a cost segregation study generally include items that are affixed to the building but do not relate to the overall operation and maintenance of the building

Valuable tax Savings Imbedded in Buildings

Your company’s real state holdings constitute a considerable capital investment. With GSBA’s partners’ engineering-based cost segregation studies, you maximize your real state property’s financial return by generating significant cash flow savings. Our cost segregation professionals generate cash tax savings by carving out shorter-lived assets that are embedded in a building’s construction or acquisition costs (generally depreciated in 39 years)

Where can you mine out from buried tax saving? 

  • New buildings presently under construction
  • Existing buildings undergoing renovation, remodeling, restoration, or expansion
  • Purchases of existing properties
  • Office/facility leasehold improvements and “fit outs”
  • Post 1986 real state construction, building acquisitions, or improvements where no cost segregation study was performed (even though the statue of limitations previously closed on the property construction/acquisition year

Which Industries Prosper from Real State Cost Segregation?

  • Airports
  • Financial Services:
    • Bank Branches
    • Brokerage Operations
  • Food Processing
    • Food Services
    • Fast Food Restaurants
    • Sit Down Dining
  • Health Care
    • Hospitals
    • Physician Practices
    • Medical Center
  • Manufacturing
  • Hospitality
    • Hotels and Motels
    • Recreational Resorts
    • Golf Courses
  • Leasing
    • Apartment Buildings
    • Office Buildings
  • Professional Services
  • Pharmaceutical
  • Retail
    • Department Stores
    • Distribution Centers
    • Shopping Malls

Why do we call it a solid Engineering-Based case Approach?

 With our cost segregation study, you have indisputable evidence for massive tax savings that will withstand governmental agency scrutiny. We provide full documentation, employing engineering and cost estimating procedures recognized in IRS ruling and judicial decisions. A complete “audit trail” traces derived unit costs from contract documents and other sources data. Your property is categorized into shorter-life classes based on applicable tax authorities.

What do we do during a cost segregation study?

  • Physical inspect the property
  • Examine architectural/engineering drawings and specifications for potential asset reclassification
  • Analyze cost data, including the contractor’s application of payments, change orders, owner-incurred cost, and indirect disbursements
  • Prepare an itemized list of property units qualifying for shorter-life classification based on relevant income tax authorities
  • Apportion direct labor, material components, and indirect cost based on engineering drawings and specifications
  • Reconcile total costs per the engineering analysis to capitalized project cost

What if the Real State was Built or Acquired Previously?

You now have a valuable opportunity, courtesy of the IRS, if you constructed or purchased real state in a prior year but did not take advantage of a cost segregation study. This IRS horse allows you to prospectively deduct (over a one-year period) depreciation amounts that you were legally entitled to but did not claim (e.g., due to erroneous property classification as a 39 year depreciable building)

This cash flow windfall is available to you even though the statue of limitations previously closed on the property construction or acquisition year. Our cost segregation team has the engineering and appraisal skills to “carve out” the overlooked shorter-life assets and file the necessary IRS paperwork to recover your tax deduction.

What about My Accountant?

 Cost segregation is a highly specialized segment of tax law. The volume of judicial decisions, IRS rulings, regulations, and other interpretations span thousands of pages of text. The challenge is to apply this complex knowledge to the unique facts of your industry, your company’s circumstances, and the processes of your operation.

GSBA and our Cost Segregation Partners have conducted thousands of cost segregation studies throughout the United States; GSBA brings vast practical resources to your project.

Why take unnecessary Risks?

A non-specialist accountant who segregates percentages of construction cost based on invoices or other means will likely leave valuable tax benefits “on the table” Moreover, The foregoing will likely not withstand IRS examination.

 We work in tandem with your CPA (whether you are served by a large international firm, regional firm, or a local accountant) to serve your best interests and save your money!