Cost Segregation

The New York Times
"By ignoring generous IRS guidelines when establishing depreciation
Schedules, 90% of real estate investors are unintentionally overpaying taxes."

Cost Segregation Services
Cost Segregation is the process of identifying personal property assets that are grouped with real property assets and separating out personal assets for tax reporting purposes. A cost segregation study identifies and reclassifies personal property assets to shorten the depreciation time for taxation purposes, which increases annual deductions and reduces current income tax obligations. Personal property assets include a building's non-structural elements, exterior land improvements and indirect construction costs.

The IRS Cost Segregation guidelines require a detailed engineering study and analysis to fully qualify for all the available cost segregation tax advantages and benefits. MACRS -the Modified Accelerated Cost Recovery System is the current method of accelerated asset depreciation required by the United States income tax code. Under MACRS all assets are divided into classes which dictate the number of years over which an asset's cost will be recovered.

The engineering study and analysis of capital expenditures is used to determine appropriate asset classifications. Cost segregation identifies building costs that would typically be depreciated over a 27.5 or 39-year period and reclassifies them to permit a shorter, accelerated method of depreciation for certain building costs. Costs for non-structural elements, such as wall covering, carpet, accent lighting, portions of the electrical system, and exterior site improvements such as sidewalks and landscaping can often be depreciated over five, seven or fifteen years rather than over 27.5 or 39 years.

The average property can segregate between 20 and 30% of their property value, which can have a dramatic impact on their operating capital.