Did you incur costs during the building and construction or purchase of your facility? You can likely accelerate some deductions with a cost segregation study, an engineering-based analysis of the costs associated with the acquisition, construction, or renovation of a building.
Watch the video below, or read on for more information:
A cost segregation study is an engineering study done on a property that is either just recently been built or purchased – or even one that was purchased or built 15 years ago.
The idea is – if you do not do a study – the components of the property get split into two pieces, land and building. And unfortunately, that building piece has to be depreciated over a 39-year time frame.
With a cost segregation study, those components get several additional pieces added in, which are:
- A 5-year component,
- A 7-year component, and
- A 15-year component.
The result would be an acceleration of your depreciation deductions, which then:
- Reduces your current taxes,
- Increases your cash flow, and
- Puts money in your pocket that you can use to either pay down debt or invest back into the business.
READ MORE: Like-Kind Exchanges: What Real Estate Investors Need to Know
There are likely many businesses that are missing out on the opportunity to conduct a cost segregation study. Many people probably don't know the existence or the benefits of it. It originally was a benefit to only very large companies, but when the tax laws changed, the benefit also trickled down to mid-size and smaller companies.
If somebody has paid more than $1 million to construct or purchase a property, and they've done it within the last 15 years, they should strongly consider looking at an analysis of whether or not there would be a benefit in going forward with a study.
For example, we recently completed a cost segregation project on a client’s new facility. The cost of the facility was in the neighborhood of $15 million, and we were able to get in excess of $3 million of depreciation expense in the first year.
I believe the benefit to cost ratio there was over 30-to-1. That’s an example of a very good return.
Could a cost segregation study benefit you? Contact Andy Kahn at akahn@concannonmiller.com or 610-433-5501 for a free 30-minute consultation.
