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Cost Segregation

Cost segregation can mean tax savings and increased cash flow

Cost segregation can be a strategic tax-saving tool for real estate developers, retailers, manufacturers, or any organization that has purchased, renovated, or constructed property in the last 15 years.

Without cost segregation, building components are depreciated over 39 years. A cost segregation analysis identifies personal property that can be depreciated over a variety of shorter recovery periods utilizing accelerated depreciation methods. 

The ideal time for a cost segregation analysis depends on your tax situation. It can be:

  • Post-purchase, Remodel, or Construction — IRS Form 3115, Application for Change in Accounting Method, makes it easy to go back and claim missed depreciation on assets acquired as far back as 1987 without amending prior tax returns.
  • Year Placed in Service — The optimum time is during the year a building is being constructed, purchased, or remodeled. This allows the owner to immediately optimize tax savings and accurately classify assets.

You will appreciate our expertise and thoroughness

Our multidisciplinary team of cost segregation consultants includes accountants, engineers, and attorneys. They have the experience and skills to help you identify and document the shorter-lived assets in your project. They also know the judicial decisions, IRS rulings, regulations, and interpretations that make cost segregation studies complex.

Our hope is that you will appreciate the bottom line savings created by our expertise and thoroughness. 

A proven cost segregation methodology

Plante Moran has a three-stage approach to cost segregation analysis. We begin by interviewing you so that we can understand your organization’s scope of capital investments. We then estimate your cost segregation benefit to help you decide whether our cost segregation services are right for you.

If you decide to move forward, we visit your site and gather relevant data and documents. We use the information to conduct an engineering and tax analysis and prepare your report.

In the final phase, our cost segregation consultants review the report with you, prepare any necessary tax compliance forms (Form 3115 — Application for Change in Accounting Method), and deliver the final study. 

Developer saves $1.9 million in tax over the first five years

For a developer who spent $42 million for two shopping centers, Plante Moran engineers segregated $15.5 million of the building components and land improvements into shorter class lives. The result was $1.9 million in tax savings in the first five years and a present value savings of $1.8 million over the lives of the centers.

Using the same process, we helped a manufacturer allocate more than $1.5 million of his $4 million new plant to short-lived property. The result was a tax savings of $145,000 in one year, and $387,000 over the first five years.

Do you have hidden cash in your property?