Cost Segregation: Tax Strategies To Increase Your Cash Flow
Cost segregation is a commonly used sophisticated tax planning strategy applicable to building owners or renters that have constructed, acquired or renovated nearly any kind of real estate. The goal is to identify tax savings and increase cash flow through accelerated depreciation deductions and deferring federal and state income taxes.
The construction cost or acquisition price of a property is typically depreciated over 27.5 or 39 years. A quality cost segregation study provides the documentation necessary to identify all shorter life property that can be depreciated typically over 5, 7 or 15 years. This front loading of depreciation allows the tax payer to take advantage of the time value of money.
Cost Segregation Benefits
Immediate increase in cash flow: Cost segregation allows a portion of the property costs classified as real property to be reclassified to personal property with lower depreciable lives that will increase the owner’s depreciation deduction.
Asset management tool: A quality study will quantify all of the major components and improvements of a building so they can be easily written off when disposed or renovated.
CTI Cost Segregation Procedures
CTI’s cost segregation procedure includes the following steps:
- Communicate with your business’s key personnel or technical advisors to collect available cost and property documentation such as purchase agreements, bank statements, contractor agreements, construction plans, invoices, etc.
- Perform a physical site inspection of your property to review and document the condition of the existing assets.
- Create a list of basic component assets and apply appropriate actual or estimated costs per the gathered data.
- Allocate soft costs and indirect costs to the basic component assets and reconcile to the total cost basis.
- Identify the segregated assets or units of property from the basic component asset list with appropriate depreciable class lives as personal property or real property, including a reference to accepted codes and legal citations.
- Create a fully supportable cost segregation study that will withstand audit and comply with the IRS Cost Segregation Audit Techniques Guide.
- Coordinate project details with the owner’s CPA or tax advisor and assist as necessary to complete the appropriate tax filings required to secure the benefit. We work closely with your advisor since a cost segregation may affect other areas of your tax position.
The CTI Cost Segregation Advantage
Cost segregation may be among the most frequently used yet least understood tax strategies. To put your cost segregation confusion to rest, your outsourced tax experts at CTI bring more than 25 years of experience in cost segregation, engineering and construction. We offer our clients:
- A specialized team of professionals: A veteran team of cost segregation engineers, construction estimators, CPAs and experienced tax professionals.
- A progressive approach: Lifetime asset management services to keep you in compliance from in-service to disposition, including management of repair regulations and recapture gains at property disposition.
- A proven process for documentation: Testing over time against the demands of the IRS and national independent audit firms.
- Our one-of-a-kind proprietary technology: Using advanced proprietary technology, our integrated system assists us in efficiently completing the cost segregation process and identifying the other associated benefits.