What is a cost segregation study?

A cost segregation study is a strategic tax savings tool that allows companies to increase cash flow by accelerating their depreciation deductions. This is accomplished through deferring Federal and State income taxes. Cost segregation studies use IRS guidelines and case law to re-classify commercial building expenditures into more favorable depreciation categories.

Most accountants and building owners depreciate all commercial buildings and improvements whether constructed or purchased, over 39 years. But, for tax purposes, depreciable commercial real estate actually consists of four distinct kinds of property–three of which qualify for much faster depreciation. The cost of a commercial building structure must be depreciated over a full 39 years. However, A commercial building owner also purchased land improvements such as curbs, a parking lot and landscaping which may be depreciated over 15 years. In addition, the tangible personal property within the structure, such as machinery, may be fully depreciated in just 5 to 7 years. The electrical, plumbing or other construction components necessary to support tangible personal property may also be depreciated over 5 to 7 years.

An engineering-based Cost Segregation Study from PFA will carve out the costs that qualify for accelerated depreciation and segregate them into the appropriate categories. Your client will benefit from an increase in depreciation and a reduction in their tax burden for the next 5, 7, or even 15 years! The tax savings are already there, and uncovering them will help you to keep key clients and win new ones.

PFA has two locations to provide cost segregation services to the greater Chicagoland area. Unlike most firms, we provide cost segregation in Chicago to small and medium sized business. Now small business can receive the same tax breaks that their larger competitors have enjoyed for years.