Cost Segregation Studies

Using Depreciation to Your Advantage: Cost Segregation Studies

Among the many sophisticated tax tools we use to help clients increase their cash flow and defer federal income taxes and state income taxes are Cost Segregation Studies. Until recently, cost segregation studies were only applicable to large Fortune 500 companies and property owners. Today, due to recent IRS rulings, smaller corporations and property owners can realize significant increased cash flow by accelerating the depreciation of real property costs and recovering unclaimed depreciation deductions. At PIASCIK, headquartered in Richmond, Virginia, we've conducted a number of Cost Segregation Studies nationwide resulting in hundreds of thousands of dollars in client savings. Those businesses realizing the greatest cost savings potential include:

  • Apartment Complexes
  • Auto Dealerships
  • Restaurants
  • Hospitals, Medical Centers and Nursing Homes
  • Hotels
  • Industrial/Manufacturing
  • Office Buildings (Class A)
  • Resorts
  • Retail Chains, Supermarkets and Strip malls
  • Recreation and Sports Facilities

How Does Cost Segregation Work and What Is it Worth?

Traditionally, owners of commercial buildings must depreciate building and structural components over a 27.5 or 39-year period. However, using a cost segregation study, qualifying projects are identified, segregated and reclassified into shorter depreciable tax lives of five, seven or 15 years for federal and state income tax purposes. Savings are achieved by reducing tax liability in earlier years, thus enhancing cash flow.

The potential savings realized from a cost segregation study will vary based on a number of factors, including your effective tax rate -- but it is not unusual to obtain savings approaching $100,000 on projects as small as $1,000,000 in total development costs.

The following table illustrates the potential benefits gained from a cost segregation study. 

Property Type Total Costs (in millions) Net Present Value
of Tax Savings
Tax Savings
Years 1-5
Apartment Complex $1.52 $84,039 $129,704
Auto Dealership $1.64 $118,238 $141,210
Manufacturing Facility $2.81 $208,136 $259,101
Strip Shopping Center $2.48 $117,738 $372,425
Office Building--Class A $3.50 $158,668 $178,303