A cost-segregation study (CSS) helps managers break down and itemize construction and acquisition costs so that they can be allocated to shorter depreciation lives. Simply put, the CSS evaluates all information, including current records and inspections, and presents the findings in a clear, well-documented and easily understood format. A CSS can include a review of cost details for the property, as well as blueprints and a physical inspection of the property.

How shorter depreciation time strengthens a balance sheet

For tax purposes, the cost of commercial real estate is usually depreciated over 39 years. The CSS's primary goal is to identify all property-related costs that can be depreciated over five, seven and 15 years, according to KBKG, a firm that provides solutions to accounting firms. 

Two immediate benefits of a CSS 

Reduction in current income obligations, which decreases taxes and frees up resources, thereby generating an immediate increase in cash flow through accelerated-depreciation tax deductions.   Quantification of a property's major components and leasehold improvements so they can be written off when they are replaced or renovated. 
If you're picking a company to help you, consider the following guidelines: 

The company should be able to stand up to IRS scrutiny and be available if you are audited. Although all cost-segregation companies will tell you that they'll stand behind their work, you . 
Historically, large, well-established companies with impressive track records are more likely to defend you if you are audited by the IRS. 
Check out the profiles of a potential company's principals and speak to a few of its clients.
The company's professionals should be certified by the American Society of Cost Segregation Professionals. 

When to conduct a CSS

Typically, the CSS can be conducted anytime after a purchase, remodel or construction of a property. For new owners, however, the ideal time for a study is during the year in which a building is constructed, purchased or remodeled. For companies in the planning phases of construction or remodeling, the best time is before the infrastructure of the building is set. Typically, the CSS takes between 30 and 60 days to complete. The length of time is contingent on how quickly construction companies or their management-consulting companies receive the information they need.

Although cost segregation can be complex, it can be a savings strategy well worth exploring if you're working with the right company. Give us a call today, and we'll explain what cost segregation means for your company and how you can get started.