COST SEGREGATION: A VALUABLE STRATEGY FOR
WHITE PAPERCOST SEGREGATION: A VALUABLESTRATEGY FOR COMMERCIALPROPERTY OWNERSBy Leah J. Szlatenyi, CPA/ABV/CFF, CVA, MSPFP, MST, Bentley Consulting Group, LLC
Cost Segregation: A Valuable Strategy for Commercial Property OwnersCost segregation is an engineer-based analysis designed tomaximize depreciation and cash flow on commercial property.In its simplest form, a cost segregation study reclassifies purchased,constructed, improved, or inherited commercial property into shorter lifeassets. By doing so, commercial property owners will maximize depreciationdeductions, accelerate income tax deductions, and increase cash flow.WHAT A COST SEGREGATION STUDY DOESAn engineer-based cost segregation study benefits the taxpayer throughincreased upfront tax savings and improved cash flow by virtue ofcorresponding tax deferrals. Such benefits are derived from two sources:Increased deductions arising from costs shifted from non-depreciable landto depreciable property (land improvements) and the time value of moneyimpact of accelerating depreciation deductions to earlier tax years.An additional, and often substantial, benefit of a cost segregation studyis that it allows property owners the ability to write off the segregatedassets (e.g., roof, windows, boilers, etc.) should they later become obsolete,damaged, or replaced.COST SEGREGATION STUDIES ARE PERFORMEDFOR PURCHASED, CONSTRUCTED, RENOVATED, ORINHERITED COMMERCIAL PROPERTY.All types of commercial properties qualify including, but not limited to:2 Manufacturing Facilities Auto Dealerships Grocery Stores Hotels Apartment Buildings Laboratories Medical Office Buildings Office Buildings Restaurants Retail Stores Entertainment Facilities Funeral Homes For-Profit Hospitals Assisted Living Facilities Fast Food Chains Warehouses 2017 Bentley Consulting Group, LLC
Cost Segregation: A Valuable Strategy for Commercial Property OwnersCASH BENEFITS OF A COST SEGREGATION STUDYFor many companies, the tax savings over the initial five-year life ofthe property have been dramatic, equating to hundreds of thousandsof dollars. For example, the following are samples of the cash savingswe achieved for our clients (identifying Information has been removed toprotect the interests of the respective property owners):Retail Store 21M project cost 4M increased depreciation in first 5 years 1.6M tax savings in first 5 years 1.2M present value of increased cash flow over property lifeApartment Complex 4M project cost 600K increased depreciation in first 5 years 230K tax savings in first 5 years 120K present value of increased cash flow over property lifeManufacturing Facility 11M project cost 2.9M increased depreciation in first 5 years 1.1M tax savings in first 5 years 720K present value of increased cash flow over property lifeMixed Use Development3 172M project cost 43M increased depreciation in first 5 years 10.9M tax savings in first 5 years 7.1M present value of increased cash flow over property life 2017 Bentley Consulting Group, LLC
Cost Segregation: A Valuable Strategy for Commercial Property OwnersQUALITY COST SEGREGATION STUDIESAccording to the IRS1, a “quality” cost segregation study is bothaccurate and well-documented. The preparer should have the requisiteknowledge, expertise, and experience.At Bentley Consulting Group, we employ a team of engineering and taxprofessionals who work closely with the property owner, constructionengineer, construction manager, and the property owner’s CPA firm.Because cost segregation is factually intensive, we rely upon a myriad of taxcourt cases, rulings, memorandums, pronouncements, and promulgationsas support for the study.We issue a comprehensive engineer-based report that includes explanationson the segregation of property, testing procedures, estimated savings, aswell as details of the various pronouncements and tax court cases reliedupon. Depending upon the size and complexity of the project, hundredsof assets can be identified in a 100-200 page report. Cost segregationsare generally feasible for properties purchased, constructed, improved, orinherited within the past five-year period for 1,000,000 or more.IRS Cost Segregation Audit Technique Guide, dit-techniques-guide-table-of-contents .1 As required by U.S. Treasury Regulations governing tax practice, Bentley Consulting Group, LLC informs you that any tax advicecontained in this communication (including attachments) was not written or intended to be used for and cannot be used by therecipient or any taxpayer for the purpose of avoiding penalties that may be imposed under the Internal Revenue Code or applicablestate or local tax law provisions.4 2017 Bentley Consulting Group, LLC
Cost Segregation: A Valuable Strategy for Commercial Property OwnersAbout Bentley Consulting Group, LLCBentley Consulting Group, LLC is a financial consulting firm that employscredentialed professionals with years of experience to help you meet your strategicobjectives, whether you are looking for tax credit research, strategic planning, costsegregation studies, or business valuations. Give us a call if you need assistance aswe would be happy to talk with you about your needs.Headquarters117 Metro Center BoulevardSuite 3000Warwick, Rhode Island 02886Telephone 401.921.2005Facsimile 401.921.2010www.bentleycg.com6 2017 Bentley Consulting Group, LLC
Cost Segregation: A aluable Strategy for Commercial Property Oners 2017 Bentley Consulting Group, LLC QUALITY COST SEGREGATION STUDIES According to the IRS1, a “quality” cost segregation study is both accurate and well-documented. The preparer should
As specified by the IRS, cost segregation specialists use an engineering-based approach for both new and existing properties. Per the IRS Cost Segregation Audit Techniques Guide (ATG), Chapter 4, the prime characteristic of a high-quality cost segregation is “preparation by an individual with expertise and experience”. ThisFile Size: 1MBPage Count: 9
Principal Elements of A Quality Cost Segregation Study* *Taken directly from the IRS Cost Segregation Audit Techniques Guide. About Madison SPECS Specialized Engineering and Cost Segregation In-house team of over 50 experienced en
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segregation did not violate the U.S. Constitution. This concept was known as “separate but equal” and provided the legal foundation for Jim Crow segregation. In Plessy, the Supreme Court said that segregation was a matter of social equality, not legal equali
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