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Cost Segregation Studies

What is a cost segregation study?

When an individual or a business purchases or constructs a building, the costs are generally divided between land and building. The land is not depreciated at all and the building is generally depreciated over 39 years (27.5 years in the case of residential property). A cost segregation study is a detailed engineering report that breaks out or "segregates" various costs incurred in the construction of the building between "real" property and "personal" property. Personal property is generally depreciated over a life of 5, 7, 10 or 15 years rather than the much longer 39 year life of real property.

A cost segregation study breaks down construction and acquisition costs to the proper categories, maximizing depreciation deductions and increasing cash flows for the owner. For buildings that are already in service, the I.R.S. allows the taxpayer to catch up on certain missed depreciation deductions for buildings that were placed in service as far back as January 1, 1987. This is accomplished by filing for a change in accounting method. The Internal Revenue Service now allows taxpayers who perform a cost segregation study to qualify for an "automatic" change in their accounting method, thereby eliminating much of the red tape and hassle that would normally accompany other changes in accounting methods. Put simply, no amended tax returns must be filed in order to reap the tax rewards!

Both construction expertise and tax expertise are critical in determining which assets qualify for the shorter life. We at Kilpatrick, Luster & Co. CPA, PLLC have formed an affiliate entity named National Cost Segregation Specialists, LLC to perform these studies. Our team of professionals includes CPAs, contractors and real estate professionals who have the expertise necessary to do the job right and maximize the benefit for the taxpayer.

Some of the buildings which make great candidates for these studies are:

  • Apartment Buildings
  • Auto Dealerships
  • Hospitals
  • Manufacturing Facilities
  • Nursing Homes
  • Restaurants
  • Self-storage Facilities
  • Assisted Living Facilities
  • Fast Food Restaurants
  • Hotels and Motels
  • Medical Clinics and Offices
  • Office Buildings
  • Retail Businesses
  • Shopping Centers

Call or e-mail us to arrange for your free, no obligation appointment to meet with one of our experts and see how much you might benefit from a cost segregation study.