Cost Segregation

What it is:

Cost segregation is the analysis of building construction costs or building acquisition costs in order to assign proper recovery periods for Federal Income tax purposes to the building’s real and personal property components.  

Why:

Many taxpayers simply capitalize the building’s entire construction cost or acquisition cost to the real property recovery period (39 year for non-residential or 27.5 year for residential) and straight-line method.  By taking this simple approach the taxpayer is ignoring those costs that can and should be depreciated at shorter recovery periods.  These shorter-life costs are for land improvements (15 year; 150% declining balance), and personal property dedicated building components (5 or 7 year; 200% declining balance).  By properly segregating and capitalizing the shorter life costs, the taxpayer can take advantage of larger yearly deductions claimed on their building due to the shorter recovery periods.  The shorter-life costs may also be eligible for the 50% or 100% bonus depreciation.

The cost segregation process varies only slightly depending on whether the building was newly constructed or acquired. In both instances, all invoiced project construction costs or acquisition costs are reviewed and shorter life property costs are segregated.

In addition, an engineering analysis is performed of the construction drawings in order to identify and assign costs to those building components which were not detailed in the invoiced costs.

A facility tour is conducted to verify findings of the costs and blueprint review. Finally, a report is issued to the client that describes the procedures followed and provides summary and detailed schedules of the cost segregation findings.

Please contact NorthGreen Associates for a proposal containing a fee quote and benefit estimate customized to your building.