An often over-looked tax-saving opportunity is accelerated depreciation of costs associated with the construction, renovation or purchase of a new building or real estate. This study is a comprehensive analysis of hidden personal or tangible property for commercial/manufacturing-use buildings.  It includes the analysis of cost data including the contractor’s application of payments (AIA), change orders, owner incurred costs, and indirect disbursements.  It is also used to analyze purchase price of property to segregate assets from the building cost. Generally, 15 – 50% of costs can be segregated to shorter lived assets. However, the CSS is not a component study, but allows indirect costs to be allocated to various depreciable lives. This study can help you improve profitability by maximizing tax benefits on certain projects.

Encore Tax Consulting Group, Inc.’s approach to cost segregation is different. We are well equipped to analyze all types of construction documents. We get into the details to find cost savings that would otherwise be overlooked.

Maximizing your investment

The tax life of most commercial buildings is 39 years. The tax life on equipment and land improvements can vary from 5 to 15 years. With this large difference between the categories, it is important to classify each type of property to take advantage of the shortest tax life. Through a cost segregation study, an asset’s depreciable life is shortened where appropriate. This in turn accelerates expense and decreases taxable income. As a taxpayer, you pay less tax during the early stages of a property’s life.

Specific sales tax exemptions

Substantial sales tax savings may be achieved by classifying tangible personal property as industrial machinery and equipment. Many states provide a sales tax exemption to a company purchasing qualifying machinery and equipment. Sales or use tax exemptions represent immediate and permanent cash savings.

These Studies benefit a variety of real estate properties

Cost segregation studies benefit a wide range of properties. Tax planning opportunities exist when you:

  • New buildings under construction
  • Existing buildings undergoing renovation or expansion
  • Office leasehold improvements and “fit-outs”
  • Purchase of existing properties
  • All post – 1986 real estate construction, building acquisitions or improvements

Creating an audit trail

A properly documented third-party cost segregation study can help resolve IRS inquiries at the agent level, while improper documentation of cost and asset classification can lead to an unfavorable audit adjustment.

Get the most out of your project

Proper identification and allocation of construction-related costs into assets with short recovery periods is one of the most significant opportunities to reduce your income tax liabilities. We can help ensure you maximize your investment.


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