What is Cost Segregation?

Cost Segregation is an engineering-based, tax savings tool to help companies that have acquired, renovated, constructed, or expanded real estate to reduce current income tax liabilities by accelerating depreciation deductions for qualifying components.

We help clients identify assets within a building that can be reclassified into a much shorter depreciation recovery period than the building itself. Real estate properties are generally depreciated using a straight-line method of 39 years (27.5 years for residential properties).

Scarpello Consulting’s team of engineers and CPAs can maximize your tax benefits by identifying, classifying and segregating the personal property components and land improvements of the building, resulting in depreciable lives of 5, 7 and 15 years using accelerated depreciation. As an IRS approved tax strategy, a Cost Segregation study decreases your tax liability while adding cash to your company’s bottom line.

Who Can Benefit From Cost Segregation?

Property owners with a current year tax liability can receive significant benefits from a Cost Segregation Study.

Clients are surprised to learn that most properties that have been constructed, purchased or renovated since 1987 qualify for this tax benefit. From apartment buildings, assisted living/nursing homes, auto dealerships, office buildings, restaurants, hotels, medical buildings to retail spaces,  Scarpello Consulting works with a wide range of building types and ownership structures.

An additional benefit of a Cost Segregation study is the proper identification of Units of Property (UoP) in accordance with the IRS Repairs and Maintenance Regulations allowing for future disposals of structural components.

To determine if your building or project is a candidate for a Cost Segregation Study, ask yourself the following:

  • Is the purchase price of the building at least $750,000?
  • Have we purchased, constructed or renovated any property since 1987?
  • Do we plan on keeping our property for the next few years?
  • Do we have taxable net income?

We also routinely partner with a client’s CPA or tax professional to seamlessly work together to identify tax saving opportunities.

When should we consider a Cost Segregation Study?

A Cost Segregation Study can be conducted at the time a property is purchased, renovated or constructed. If you placed properties in service in previous years a Cost Segregation study can still be performed in accordance with Revenue Procedure 2011-14 without amending returns.  Any missed depreciation from previous years can be taken in the current year through the filing of IRS Form 3115.  Scarpello Consulting also assists clients that are in the feasibility phase of a construction project to identify potential tax savings.

 

Cost segregation improves cash-flow and the bottom line for building owners.

Cost segregation studies have become an increasingly valuable but not commonly understood tax strategy that should be considered by virtually every taxpayer who owns, is constructing, renovating or acquiring real estate. The tax benefits of cost segregation can be applied to various types of real estate: apartments, assisted living/nursing homes, auto dealerships, office buildings, restaurants, manufacturing, hotels, medical buildings, retail space and others.

IRS SUPPORTS COST SEGREGATION

Although cost segregation has a long history, the basis for today’s studies were established by a US Tax Court decision in 1997. Recently, the IRS has continued to validate, uphold and improve the value of cost segregation studies by enacting the 2002 and 2003 Tax Acts. For those that should conduct a retroactive study, the IRS now allows the benefits to be recognized in the current year, rather than over a four year period without filing an amended return.

Energy Efficient Home 45L Tax Credit

Although Cost Segregation is a focus of Scarpello Consulting, we know our clients have other needs when it comes to minimizing their tax liabilities. That’s why we add new services and technical experts to help our clients.

Apartment complex owners, building contractors and others wishing to take advantage of the Energy Efficient Home 45L Tax Credit have until December 31, 2013 to apply for the credit while also meeting specific requirements. A variety of properties can qualify – from dwelling units to new construction or properties that have undergone substantial renovation or rehabilitation. Homes built after December 31, 2011 also have to meet energy code requirements with the contractor obtaining a certification that the property meets certain energy savings requirements. Contractors and Eligible Small Businesses (EBS) can also realize a credit in a carryback period to 2010. Additional information about the credit is available.

Property Tax

As state tax coffers shrink (while property tax bills rise), clients come to Scarpello Consulting to work with professionals who can help ensure that property tax is fair, reported accurately and tax assessments are correctly levied. Scarpello works with clients in a variety of businesses from manufacturing, healthcare, construction, retail and hospitality to multi use properties.

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Scarpello Consulting will provide a no obligation benefit analysis to determine your tax savings.




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