A tax deduction today is worth more than a tax deduction next year, and worth much more than 40 years from now. Cost segregation operates on this same principle of the time value of money – by decreasing current income, you defer tax payment, creating a financial gain today.

Typically, commercial building spaces are depreciated over 39 years, while residential rental properties are depreciated over 27.5 years. Under IRS cost segregation guidelines, a significant portion of a building’s cost can be depreciated over much shorter periods – usually five, seven or 15 years. Facility owners can expect to deduct between 10 percent and 60 percent of costs over the shortened recovery periods. Why pay these taxes today, when you can pay them tomorrow?

Doeren Mayhew’s Tax Incentives Group has helped numerous clients defer taxes in excess of $1 million per year. Cost segregation rules are complicated and hard to navigate. Let us perform the hard work of a cost segregation study, while you reap the benefits of significant cash-flow savings and potential reduced quarterly payments, property tax and transfer tax.

Qualifying Properties

Many types of building components can qualify for the shortened depreciation period and accelerated depreciation method. Following are some of the most common examples:

• Molding, millwork and other decorative elements
• Wall coverings, partitions, window treatments, counters, cabinets, shelving and special lighting
• Specialized machinery and equipment and the costs of plumbing and electrical allocable to such equipment
• Certain land improvements located outside of a building, which may be depreciated over 15 years

Sample Success Stories

• More than $1 million total net present value of tax deferral on an apartment complex. Constructed for $23 million, a cost segregation study a year later provided first-year depreciation of $2.4 million and a present-year tax deferral of nearly $1 million.
• Nearly $775,000 total net present value of tax deferral on a manufacturing facility. Purchased for $14 million, a cost segregation study was performed seven years later, providing first-year depreciation of $2.7 million and a present-year tax deferral of nearly $1 million.
• More than $375,000 total net present value of tax deferral on a multi-tenant office building. Purchased for nearly $10 million, a cost segregation study was performed two years later, providing additional first-year depreciation of nearly $770,000, resulting in a present-year tax deferral of more than $300,000.