Real Estate Appraisals, Valuation & Consulting

Cost Segregation

A cost segregation study is a strategic tax savings tool allowing companies to increase cash flow by accelerating their depreciation deductions by 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. For example, while the cost of a commercial building structure must be depreciated over a full 39 years, land improvements such as curbs, a parking lot and landscaping may be depreciated over 15 years, and the tangible personal property within the structure, such as machinery, may be fully depreciated in just five to seven years. The electrical, plumbing or other construction components necessary to support tangible personal property may also be depreciated over five to seven years.

Engineering-based cost segregation studies also carve out the costs qualifying for accelerated depreciation and segregate them into the appropriate categories. Such studies can speed the timeline for depreciation while reducing the tax burden.

Praedium Valuation Group provides cost segregation in Chicago to small and medium sized business from two area locations. Now small businesses can receive the same tax breaks that their larger competitors have enjoyed for years.

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