The Benefits of Cost Segregation

On average, 20% to 40% of a property may be reclassifed to a short depreciable life (5, 7 or 15 years).

Our team of engineers/IRS agents/CPAs is very experienced in cost and construction estimating, tax codes and IRS documentation. Veritax PA can provide you:

• Material reductions in your federal and state tax liabilities for the year of the study and the next decade - typically hundreds of thousands of dollars.
• Assistance in gaining lender support for new or existing projects by increasing your debt to service ratios through higher cash flows.
• Reduction in real estate property taxes. Property taxes are calculated as a percentage of the building costs. Personal property should be accurately removed from the cost of the structural components and should not be subject to property taxes.
• Tools and information to correct misclassified assets and the opportunity to go “back in time” to claim “catch up” depreciation in the current year.
• Reductions in sales transfer tax on acquisitions.
• Reduction in insurance costs by identifying the components of the property that do not need to be insured.
• Ability to fully retire and write off structural components that are demolished during renovations, as opposed to capitalizing the assets. This can generate substantial tax benefits.

Reasons Benefits of Cost Segregation are Often Overlooked:

• Commercial property owners are not aware of the magnitude or importance of the potential benefits.
• All components of “real estate” are assumed to be “real property” for Federal tax purposes.
• Complexity of the tax law requires familiarity with numerous IRC sections, regulations, revenue rulings and case law.
• Many clients are told they have had cost segregation performed but it was only a partial or incomplete study that did not follow the IRS preferred engineering-based methodology.
• CPA’s and the property owner are unable to extract the necessary detail from contractor invoices and payment applications, or the property is purchased well after the building has been built and the necessary information is no longer available.