Cost segregation is a strategic tax-planning tool that helps to accelerate tax depreciation, thereby increasing cash flow and deferring state and federal income taxes.
A cost segregation study breaks out the various costs in the construction and acquisition process to identify those that qualify for shorter tax lives. The typical period for depreciating real property is 39 years, while personal property is taxed over 5, 7, 10 or fifteen years. “Segregating” personal and real property allows owners and investors to take advantage of shorter depreciation schedules.
Wolf & Company’s professional staff, coupled with our relationship with national engineering consultants, ensures that your company receives the maximum benefit associated with a cost-segregation study. Our approach includes:
- A physical inspection of the property.
- A thorough examination of the architectural/engineering drawings and specifications to determine the qualification of the building construction and its component parts, the building services systems, and interior finishes and personal property.
- An analysis of all cost data, including the general contractors’ application for payment, change orders, owner-incurred costs, and indirect costs.
- The identification and preparation of an itemized list of those property units that, in our opinion do and do not qualify for shorter life, based on our experience with the Internal Revenue Service and interpretations of revenue rulings, private letter rulings, and judicial decisions.
- A proper allocation of the indirect costs.
- A proper reconciliation of the total cost used in our analysis to the total project capitalized costs, as documented in your accounting and control records.
Our methodology is based on fully documented, professional engineering and cost-estimating procedures; and complies with IRS Letter Ruling 7941002. The study will provide an audit trail that can be traced from the derived unit costs taken from the contract documents to the completed building and its components. At the conclusion of the engagement, we will provide you with a detailed report that will provide the necessary cost-segregation data.
Wolf & Company LLP will assist your business in defining the benefits and impact of a cost segregation study. Once underway you can turn over the reins to our professional staff.
For more information on our cost segregation services, contact Thomas B. Murtagh, Partner, Tax Services.