Cost segregation studies

Tax Savings are built right into buildings

A cost segregation study can generate significant tax savings by analyzing the capital expenditures or investment made in a residential or commercial building. The study properly allocates real estate between real property and personal property for tax depreciation. Personal property is generally depreciated over 5-, 7- or 15-year periods whereas real property is depreciated over 27.5- or 39-year periods. The costs to be segregated are not only just the actual direct costs of construction or acquisition, but also the indirect or soft costs. Therefore items such as capitalized interest, legal, appraisal, architectural, engineering, design and construction management fees can be proportionately allocated to shorter depreciation periods.

Creating tax savings from eligible structures, such as:

• New buildings currently under construction.
• Buildings and facilities constructed after 1986.
• Buildings and facilities purchased in a taxable transaction after 1986.
• Building renovations completed after 1986.
• Remodeling, restoration or expansion made to buildings after 1986.

Our Approach

• Perform a physical inspection of the property.
• Review engineering/architectural drawings and specification for potential asset reclassification.
• Study cost data where available such as contractor's application of payments, change orders, and other costs incurred by the owner.
• Compile an itemized list of units that qualify for shorter-life classification.
• Apportion costs based upon engineering drawings and specifications.
• Reconcile the total cost capitalized on the project to the engineering report.
• Prepare new depreciation schedules.
• Prepare required tax form (IRS Form 3115).
• Prepare final report documenting the results of our study.

What industries benefit?

• Manufacturing
• Office buildings
• Physician practices
• Medical centers
• Hotels and motels
• Fast food restaurants
• Professional services
• Shopping malls
• Sports facilities
• Auto repair shops
• Apartment buildings
• Supermarkets
• Convenience stores

Why DKCB?

The IRS laws, judicial rulings and other interpretations are complex and voluminous in relation to cost segregations. DKCB has developed a specialty in this area of taxation and work with professional engineers to produce a study that will maximize your tax benefits in an efficient manner. These types of studies performed by our highly qualified professionals are very likely to withstand IRS scrutiny.

How cost segregation studies benefit you:

By allocating property to shorter tax lives, a DKCB cost segregation study can accelerate the tax depreciation on the property. Accelerated tax depreciation results in:

• Increased cash flows from investments in real and personal property.
• Lower effective tax rates for corporations and individuals.
• Higher EPS or earnings per share, as a result of lower effective tax rates.
• Increased cash flows available for new investments.
• Maximized investment tax credits on improvements and property placed in service in manufacturing facilities.

For more information, contact Jeanne E. Morelli.