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M&K Cost Segregation Group
Cost Segregation is a provision through which particular portions of real estate (owned or leased) can be reclassified for depreciation purposes. Specifically, as allowed by recent court cases and authoritative pronouncements, certain portions of buildings and surrounding real assets can be depreciated over shorter periods of time than the traditional periods of 27.5 or 39 years.
While the total deduction over the 27.5 or 39 years does not change, the timing of the deductions does. Possessing various assets with shorter class livesmeans they can be written off more quickly, which can mean a substantial increase in cash flow.
For instance, certain components of a building may be segregated and reclassified to 3-, 5-, 7-, or 15-year depreciable lives, as opposed to 27.5- or 39-year lives. This acceleration of depreciation periods translates into considerable cash flow savings.
As a top-ranking accounting and consulting firm, Marcum & Kliegman LLP offers more than 50 years of experience and the support of hundreds of employees. With its broad expertise, the firm has established the M&K Cost Segregation Group as a team of professionals who specifically focus on helping clients realize the benefits related to cost segregation.The M&K Cost Segregation Group is uniquely positioned to guide commercial and residential property owners and lessees through the recent tax rulings that have opened the door to significant savings.
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Benefits of a Cost Segregation Study:
Cost Segregations Studies: The Key to Savings
A Cost Segregation Study (CSS) is a tool used to realize the benefits of Cost Segregation under the tax law. Thus, a CSS is the process of producing various analyses and reports (prepared by qualified engineers, appraisers and financial advisers) that provide the support and basis for accelerating periods of depreciation.
- The cost of the analysis is relatively inexpensive compared to the ultimate savings
- Amended tax returns do not need to be filed as the IRS has an automatic change procedure that allows taxpayers to file forms with their current tax returns and realize the benefit in one year
- Increased depreciation in earlier years
- Increased cash flow
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- Allows for future write-offs when structural components are replaced
- Increased depreciation in earlier years
- Creates losses so you can carry-back if needed and carry-forward when applicable
- Taxpayers can receive and extra 30% and/ or 50% depreciation deduction on new "qualifying" assets
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Example:
Without A Cost Segregation Study
A building acquired for $1.9M depreciated over a 39-year life will have an annual tax deduction of approximately $48,000. Over a four-year period, the total deduction would amount to approximately $192,000.
With A Cost Segregation Study
With a Cost Segregation Study, qualified components of the building would be reclassified from 39 years to 3-, 5-, 7-, and 15-year lives resulting in a revised depreciation deduction of $488,000 over the same four years.
Over the life of the building, the cash flow savings as a result of a CSS would be approximately $124,000. The savings is computed by applying a 44% tax rate over the additional accelerated depreciation of $296,000, utilizing in this case, an 8% discount rate.
What is Eligible?
Types of properties that may benefit from a Cost Segregation Study include, but are not limited to:
- Apartment buildings
- Auto dealerships/ service centers
- Banks
- Daycare centers
- Manufacturing facilities
- Nursing homes
- Distribution centers
- Ships/ Ocean cargo vessels
- Truck terminals
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- Gas stations
- Hospitals
- Hotels
- Marinas
- Office buildings
- Restaurants
- Retail stores & plazas
- Marinas
- Warehouses
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The M&K Cost Segregation Group specializes in helping owners and lessees of real property realize significant savings under the tax laws.
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