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Cost Segregation Studies

A cost segregation study of a newly constructed, acquired or expanded facility identifies construction related costs that qualify for shorter federal tax depreciation lives.  (i.e., 5,7 or 15-year life as opposed to the 39 years required for buildings.)  The immediate benefit from the analysis is increased depreciation in the early years resulting in greater tax savings and increased cash flow.

The identification of costs as tangible personal property is performed by Lougen, Valenti, Bookbinder & Weintraub, LLP in conjunction with independent professional construction cost consultants.  Together, we review project plans, cost sheets, and other data to determine which costs are eligible for shorter lives.  For example, landscaping costs are 15-year property while carpeting, wall partitions, exterior building ornamentation, and lighting equipment may be 5 or 7 year property.

Significant savings are available through the proper classification of construction costs.  Consider, for example, a 100,000 square foot light manufacturing facility with construction costs of $4,000,000.

Typically, 15% of the construction costs will qualify as 7 year property and 10% as 15 year property.  If we assume the income tax rate (federal and state) is 40% the potential savings are as follows:

First Years Savings                                   $35,000

Net Present Value of Tax Savings           $143,000
(5% over 39 years)

As you can see, the savings can be substantial depending on the size and nature of the project.  This service also applies to warehouse and office facilities.