What is Cost Segregation?
This accelerated method of depreciation is the result of a recent IRS tax ruling that can be applied to all buildings purchased or built since 1987, including renovations.
In many cases 25% to 40% of a building's costs be depreciated in 5, 7, or 15 years versus the conventional 27 to 39.5 year rates. Because depreciation lowers taxable income, this method produces significant tax savings.
Why is an Engineered Study Necessary?
Because very specific rules relating to construction methods determine how assets are classified, the IRS audit guidelines state that the taxpayer should attain an "engineered cost segregation study" to take advantage of this tax benefit.
About CSSI
We work with CSSI, Cost Segregation Services Incorporated, an engineering studies. In fact, that's all they do. They are singularly focused on cost segregation and constantly monitor changes in IRS disallowance.
Real Results
Capitalized Leasehold Improvements
- Cost basis of $925,000
- 1st year savings $92,000 (9.9% of cap costs)
- 5 year tax savings 192,000 (20.8% of cap costs)
Retail Store
- Cost basis of $1.5 Million
- 1st year saving of $96,000 (6.4% of cap costs)
5 year tax savings of 165,000 (11% of cap costs)
Restaurant
- Cost basis of $2.4 Million
- 1st year saving of $96,000 (6.4% of cap costs)
- 5 year tax savings of 165,000 (11% of cap costs)
Multi-Family Apartments
- Cost basis of $6.7 Million
- 1st yeat savings $135,000 (5.1% of cap costs)
Shopping Center
- Cost basis of $9.8 Million
- 1st year savings 162,000 (1.6% of cap costs)
Warehouse
- Cost basis of $9.4 Million
- 1st year savings $365,000 (3.9% of cap costs)
- 5 year tax savings $783,000 (17.9% of cap costs)
The potential for an immediate increase in cash flow from reduced taxes can be significant because 100% of the increase in depreciation, starting from date of purchase though the current tax period, can be deducted on your current tax return.