If you decide to construct a new building, expand an existing one, purchase real estate, or rehabilitate an old facility your property can create a much bigger tax savings than you realize. There are potentially large tax and cash flow savings that can be achieved by taxpayers who accurately classify their construction or acquisition costs between real and personal property.
The cost segregation analysis is typically completed by an engineer to study the costs associated with the purchase or construction of a building. The purpose of this study is to determine what costs should be classified as either real or personal property. Personal property additions can be depreciated on an accelerated basis. Normally, these costs are classified as assets with a 39-year depreciable life for tax purposes. However, using a cost segregation analysis, some of these costs could qualify for a 5, 7 or 15-year depreciable life, creating significant tax savings. Some of the assets that have qualified for accelerated depreciation include landscaping, wall and floor coverings, land improvements, parking lots, fencing, outdoor lighting, specialized heating, ventilation and cooling systems for some specific business requirements, storage and shelving, moveable wall partitions, and many additional assets that are associated with the construction of properties.