A cost segregation study increases your current cash flow by accelerating federal and state depreciation deductions. Property owners use cost segregation as a strategic tax planning tool for constructed, purchased, expanded or remodeled real estate. Cost segregation studies are the processes by which personal assets are identified and separated from real property assets for tax reporting purposes. Reclassifying certain assets in this way shortens depreciation times for taxation purposes and reduces current income tax obligations. This improves cash flow and frees up funds that businesses can use elsewhere.
Gladstone Strategies and Solutions conducts engineering-based cost segregation studies – an approach described by the IRS as “the most methodical and accurate.” We use actual cost data as much as possible in our analysis, and our cost segregation studies are prepared in a manner to stand up to any challenge by tax authorities.
A cost segregation study evaluates a building’s assets and their costs, identifying those that can be reclassified into shorter recovery periods. Assets previously classified as a standard 39-year depreciable life are classified with a shorter deprecation rate, such as 5, 7 or 15 years. While it does not change the total depreciable amount of the building cost, it does accelerate a portion of the total depreciation into shorter time periods, also known as accelerated depreciation.
The Repair Regulations, or Tangible Property Regulations, address property deductions and capitalization of expenditures. Businesses in all industries that acquire, produce, replace or improve property may be eligible. Recent changes in the IRS regulations allow businesses to deduct ordinary and necessary expenses during the tax year in conducting your business or trade. This includes costs of materials, supplies, building and equipment maintenance, and repairs.
A fixed asset review evaluates a company’s federal tax depreciation schedule over the last 20 years and assigns the appropriate tax lives to misclassified assets. While a cost segregation study focuses on buildings, a fixed asset review encompasses all fixed assets a company owns, including: property, machinery, furniture, fixtures and equipment. Assets could be misclassified due to changes in case law, use of “book” lives for tax purposes or lack of the in-depth knowledge necessary to determine correct lives.
Are you a CPA or real estate professional who wants to offer your clients specialty services? Consider partnering with Gladstone to provide cost segregation studies. Reduce your clients’ tax liabilities while increasing the number of complementary resources you offer and enhancing your client relationships.