Harbor Tax Group provides comprehensive, top-quality cost segregation studies. Adhering to the American Society of Cost Segregation Professionals’ Minimum Quality Standards (www.ascsp.org), our team has an impeccable track record and keeps up with the most current tax regulations in all aspects of real and personal property expenditures.
A cost segregation study is an engineering-based analysis of building components and costs. It identifies and values all components of a property acquisition, and then allocates the actual total cost of the property based on those values. Typical building components that are allocated to 5-year or 7-year personal property include carpet; decorative trim; specialty lighting, electrical and plumbing components; most cabinetry; appliances; and furnishings. Typical 15-year land improvements identified in a cost segregation study include paving, sidewalks, curbing, storm water drainage systems, flagpoles, and mailbox structures.
Cost segregation is not limited to new acquisitions of property. If a building was placed in service any time after 1986, and a better allocation could have been made, the IRS allows the owner to file a Change in Accounting Method to recover any missed depreciation from all prior years. This catch-up adjustment can be taken on the current year tax return, and no amendments are required. The adjustment is often hundreds of thousands of dollars, and sometimes more.
A cost segregation study can create ordinary tax deductions and can be performed up until the year of a property’s sale.
By accelerating depreciation deductions, you reduce your taxable income in the early years of property ownership, when cash flow is crucial. The value of saving tax now rather than later can be measured by the net present value at a rate of return you get from the use of your cash now. You may be able to reduce your debt and interest expense, or you may be able to invest the additional cash flows into new income-earning ventures.
Savings resulting from a cost segregation study are charted as follows:
Average Federal Tax Savings Per Million Dollars of Depreciable Property**
|First Full Year
|Net Presented Value*
** Based on highest individual income tax rates
* Based on 7% rate of return
For years beginning January 1, 2008 through September 27, 2017 50% to 100% bonus depreciation is available for many first-use assets, which would increase the above savings. For assets contracted and placed in service after September 27, 2018, 100% bonus is available for most assets, new or used, with a tax-life of 20 years or less. Additional savings will be available where state income tax is applied. Cost segregation also makes available a breakdown of building components, which enables an owner to identify and to take asset retirements when replacements are required to be capitalized under the new tangible property regulations. See Asset Retirement and Tangible Property Regulations Compliance pages.
Our cost segregation study includes:
- A review of the cost basis of a property,
- Site visit to document existing assets,
- Identification of all building components and purchased assets,
- Notes and measurements from blueprints and site maps,
- Construction value estimating for assets not specifically priced,
- Allocation of actual tax basis to each asset based on actual or estimated cost, and
- Tax classification of cost basis for each asset and building component identified.
Our cost segregation report includes:
- Executive Summary and Certification
- Narrative Report and Engineering Procedures
- Statement Of Assumptions And Limiting Conditions
- Exhibits including:
- Schedule Of Assets, Property Units, and Costs
- Tax Allocations of Assets
- Building Systems
- Purchases of existing real property
- New construction projects
- Significant expansions
- Properties purchased or constructed in earlier years, up to the year of sale
- Basis step-ups from transfers of interest related to real property
Qualifying properties include any structure held in an entity where additional depreciation deductions will result in lower tax to the ultimate taxpayer. Our feasibility analysis is FREE.