Harrisburg Tax-Planning Advisers Prepare Cost Segregation Studies

Front-load your tax savings to maximize value

When you purchase a business or investment property, you are typically able to depreciate that asset over 27.5 to 39 years. That’s a steady, reliable trickle of tax savings over a period of decades. Do you know what else is steady and reliable? Inflation, along with the devaluation of the dollar, which means the money you save in year 30 would only be worth of fraction of the same amount you saved in year one. What if you could take a portion of your 39-year depreciation and claim it over five, seven or 15 years? You’d recognize the tax savings sooner when it’s worth more. If that common-sense strategy appeals to you, Breon & Associates, Accountants and Advisors is ready to help. We prepare cost segregation reports that allow you to front-load your tax savings to accelerate the maximum value possible from your purchased property.

What is a cost segregation study?

A commercial property is more than a mere structure. It is an asset composed of other assets, such as light fixtures, electrical, plumbing, carpeting, and other interior and exterior components. Those components also depreciate, but at a faster rate than the structure itself. For instance, if you bought an office building lock-stock-and-barrel, and paid mightily for computer equipment, those electronics would depreciate over five years.

What cost segregation does is analyze the physical components of the business you have purchased, develop reasonable support for the value of each component, and then place components into different categories according to their depreciable lives. Through taking a more granular look at what was purchased, you can accelerate some depreciation deductions and enjoy significant tax savings sooner, when they are more valuable.

Cost segregation continues to provide benefits into the future. Once we have identified the component parts of your purchase, you will have an easier time classifying and depreciating those individual components. So, if you must replace electrical wiring or an HVAC system, you’ve already designated that as a separate asset, so it’s easier to record and depreciate this new expenditure.

How you can save big through cost segregation

Suppose your business purchased a building for $1,000,000. This building is depreciable over 39 years. If your company pays a 30 percent federal tax rate, that depreciation schedule saves you about $7,700 per year in taxes.

But what if half the cost of the building contains high-tech components that depreciate over five years? By segregating the purchase value allocable to the technology, say $500,000, you’d realize an additional $22,300 a year in tax savings for the first five years. This will free up more working capital which you can use for a variety of business objectives.

What does a cost segregation report entail?

At Breon & Associates, our team evaluates all pertinent information, such as available property records, sales agreements, and inspection reports and conducts interviews of pertinent parties. In many cases, we work with licensed engineers who examine blueprints and perform physical inspections. We present a clear analysis of cost details for the entire property.

Who is eligible to save from cost segregation?

Anyone who has purchased or built a commercial or investment property, or has performed a significant remodel, should inquire about cost segregation. It’s best to order a report during the year of purchase/construction, but the law allows property owners to conduct a look-back study and claim the resulting write-offs without amending prior-year tax returns as a change in accounting method. So, if you believe you’ve been missing out on tax savings, you may be able to still cash in.