Reduce Your Taxes by Using Cost Segregation

Cost segregation is the process of identifying and separating personal property assets (desks, fixtures, landscaping, etc.) from real property (the actual building or structure) assets for tax purposes. A cost segregation study identifies and reclassifies these assets to shorten the depreciable life for taxation purposes, which could reduce your income tax liability. Applicable assets include a building’s non-structural elements, land improvements and indirect construction costs.



By using a cost segregation study with a new or remodeled structure, certain parts of the building may acutally be 5, 7, or 15 year property, as opposed to 39 year property (which is what the bulk of the building or structure will be). Things that need to be considered:

1. Can it be easily moved?


2. Is the property designed to remain in place?


3. How difficult or time consuming would it be to move the property?


4. Is the property constructed in a way that shows the intent to move it (floating dock vs. dock with concrete pilings)?


5. How much damage would be caused by the removal of the property?


6. How is the property attached (ceramic tile vs. wallpaper)?

Such items as lighting can be either personal property or considered part of the building. If the lighting provides basic illumination, then it is part of the building. If the lighting is merely decorative, then it it personal property. If it's decorative, but provides the only or main lighting, it is part of the building. As with most things, cost segregation has some very specific rules, but some items are subjective. If you are doing new construction or remodeling, please be sure to consult with a CPA or a cost segregation specialist - this is not a Do It Yourself project!

Here is the link to the first chapter to the IRS Cost Segregation Audit Techniques Guide - if you want some light reading to make you fall asleep or make your head spin!

http://www.irs.gov/businesses/article/0,,id=134122,00.html