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Cost segregation and
purchase price allocations offer significant economic benefits to
commercial and industrial property owners. While the process differs for each, the advantages are the same…
to lower tax burdens.
A Cost Segregation
analysis by Griffin Valuation Group's team of engineers and accounting
experts can uncover substantial tax savings and improve cash flow -- two of the
most important things an owner can do.
What benefit is there for you?
A lot. For every
$1 Million of reclassified cost, the net present value after tax benefit can
exceed $200,000 !
IRS guidelines for cost
segregation studies recommend an engineered approach
coupled with the tax accounting expertise needed regarding federal taxes and depreciable
lives. Purchase price
allocations require the expertise of an appraiser and valuation
expert (rather than an engineer) in combination with the real estate tax accountant.
Griffin Valuation Group, Ltd. offers all these required
experienced professionals in one organization.
Click here to view our Cost Segregation Brochure.
It is imperative to have the combination of a CPA in addition to
experts in construction, property valuation and construction cost estimating.
One or the others alone cannot
provide an IRS ready, complete and thorough product with the maximum tax benefit
and supportability.
Griffin Valuation Group provides the complete team and complete package -- leaving nothing undone.
Cost Segregation's Tax Benefits:
Cost segregation studies
and purchase price allocations identify and reclassify building components into
the appropriate MACRS tax depreciation categories. We identify, using IRS and Tax Court decisions, those assets that qualify for accelerated depreciation through the use of shorter tax life depreciation schedules.
The benefits of larger
tax deductions over a shorter period will:
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Maximize annual depreciation
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Reduce upfront income tax costs
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Lower cost of capital
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Improve cash flow
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Improve shareholder value
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Reduce some states' local property tax
Cost segregation studies
are a wise investment for owners that have:
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Purchased real property since 1987
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Constructed a new
facility since 1987
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Renovated, expanded or restored
an existing property
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Installed leasehold improvements
in an existing building
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Paid federal income tax on these properties. (Not in NOL's)
The chart below
illustrates the increased income tax deductions in the early years from a
Griffin Valuation Group cost segregation analysis versus the standard deductions
if no study is done.
What does the IRS say about using Cost
Segregation?
Quotes from the IRS's Cost Segregation Guide:
"In order to compute depreciation using proper class lives and recovery periods,
assets must be assigned to the proper asset classes. Cost segregation studies generally
produce listings or groups of assets, based on asset classes under ACRS (Accelerated Cost
Recovery System) or MACRS (Modified Accelerated Cost Recovery System). "
(Click to open IRS Source of
Quote)
"In order to calculate depreciation for Federal income tax purposes, taxpayers must
use the correct method and proper recovery period for each asset or property owned.
Property, whether acquired or constructed, often consists of numerous asset types with
different recovery periods. Thus, property must be separated into individual components or
asset groups having the same recovery periods and placed-in-service dates in order to properly compute depreciation."
(Click to Open IRS Source of Quote)
For even more
references and documentation by the IRS on the utilization and validity of Cost
Segregation, see our
Cost Segregation Links page!
What can be done for properties purchased or constructed in
prior years?
IRS rules have been
amended so corporations can correct the tax lives for assets placed in service back to 1987. We can correct the tax lives by doing individual cost segregation studies for older buildings and also correct the tax lives for
Furniture, Fixtures and Equipment (FF&E) which may have been improperly classified in prior years.
These projects, often
called “catch-up” depreciation studies, can involve a combination of many
individual cost segregation studies and purchase price allocations. The result of our studies can be taken as a one year lump sum adjustment on the corporate
tax return. No amended tax returns need be done.
We perform the
entire analysis and provide a
self-contained, ready-to-use product, including; a written report listing
methodologies used, detailed cost spreadsheets by asset, all depreciation calculations, and the Form 3115 plus attachments to be filed
with annual tax return.
Griffin Valuation Group, Ltd. can evaluate your entity and provide a free assessment of
the merit of a study.
Overview of How Assets Are Reclassified Into Shorter Lives:
Most real property has a
recovery period of 39 years while personal property is depreciated over 5 or 7
years. A cost segregation study will reallocate appropriate assets to 5, 7 or 15
year lives. Examples of personal property include many
decorative improvements, millwork, and special purpose electrical and mechanical
systems.
The chart below shows typical
percentages of construction and acquisition costs that can be reclassed
into shorter tax lives
by
building type. Typically the amount ranges from
20% to 30% of the total
cost !
Sample Listing of Real Vs. Personal Property
from the IRS:
Click Here for the IRS's Typical list
Asset Classification MACRS
Depreciable Tax Life
Commercial & Industrial Real
Property 39
years
Residential Rental Real Property
27-1/2
years
Land Improvements
15 years
Personal Property
5 or 7
years
A
Griffin Valuation Group, Ltd. cost segregation study
includes:
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Complete blueprint and specifications review
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Thorough on-site inspection including photographs for documentation
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Detailed construction cost analysis by each asset
and sub (not residualed
like others do!)
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Assignment of proper depreciable tax lives
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Tax research to back-up our findings
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Preliminary findings review with client
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Final written report and schedules
ready for immediate implementation
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Free audit support
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Prepared by a team of both CPAs & Cost
Engineers - exceeding IRS requirements
Our
Cost Segregation FAQ page
has frequently asked questions concerning cost segregation studies.
Our Firm
Griffin Valuation Group has the
necessary experience, technical skills and service commitment to provide the
solution you are looking for. We promise the best value you will find in the
market today, and we do not charge additional expenses on top of our
project fees. We also provide you with the highest quality product and the best
customer service.
We would enjoy
speaking with you to go over the details and to give you a free estimate of the
tax benefit you can enjoy. Give us a call or send an email soon.
Click below to Email us for a Free Estimate of Tax Benefits or call us
anytime at (219) 465-1908.
griffin@griffinvaluation.com
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