Cost Segregation Studies are little known, but very valuable tools to minimize taxes for businesses who own buildings.  The studies identify and reclassify assets, such as a building’s exterior land improvements, non- structural elements, and indirect construction costs, to accelerate depreciation and reduce current income tax obligations.

Some of our clients have saved hundreds of thousands of dollars in taxes by going through this relatively simple and inexpensive process.  

How does it work?

Instead of depreciating building costs over the typical 27.5- or 39-year period, cost segregation reclassifies those costs, permitting a shorter, accelerated method of depreciation.  The reclassification separates costs into structural and non-structural elements.  The structural elements remain on the original depreciation schedule, but all the other costs, including such “soft costs” as architectural and engineering fees, are reclassified for eligibility for rapid depreciation.  The non-structural elements include exterior improvements, such as landscaping and sidewalks, and interior accents, such as wall and window coverings, carpeting, accent lighting, and components of the electrical system.

BGR works with an engineering firm to conduct the study.  The engineering study is of critical importance, because the IRS guidelines for what constitutes structural elements vs. personal property are somewhat vague.  In fact, the IRS specifically states that:

“The preparation of cost segregation studies requires knowledge of both the construction process and the tax law involving property classifications for depreciation purposes.”

So be sure to choose your consultants carefully when embarking on a cost segregation study.