Talk:Depreciation: Cost Segregation
From TaxAlmanac
Depreciation: Cost Segregation
I am looking for information on "Cost Segregation" for depreciation purposes on a building costing over a million dollars. This info will go to the client so it needs to be in a "readable" format. Any thoughts? --Gregg Gillaspy, CPA, CFP 06:25, 23 May 2005 (CDT)
Mr G: Aug 2004 Journal of Accountancy, "Strategies CPAs can Use to Help Clients Save Money" has some info..Also, I have been solicted by a service if you wish-don pyles dgp613@aol.com
Mr. Gillaspy, I'm not sure what type of information your looking to pass to your client. I did a search off www.irs.gov, and found the following site: Cost Segregation
This appears to cover Cost Segregation at a basic level. I also did a search off www.google.com for "Cost Segreation" Building Million and it returned quite a few "hits."
I can certainly see that you might like a more broad discussion on this, but I'm hoping the information referenced above may help fill any immediate needs you may have. -- RFowler 12:35 p.m., 22 May 2005.
Hi,
I'm new here but this item caught my eye. I know a little about cost segregation in that I worked on this issue on an IRS audit for a previous employer. Cost segregation involves separating out certain components in the building that qualify for shorter depreciable lives. In the company that I worked for, we constructed buildings (retail locations) in the $5-$10 million range. All of the cost paid to the general contractor was initially booked into the building cost and depreciated over the required MACRS life for non-residential real property, which was 31.5 and then 39 years. However, some of the components installed by the general contractor qualified as 5, 7, and 15 year assets. So the cost of those items was identified, and an adjustment was made to reflect the shorter depreciable life. An example might be the conduit and wiring to the security cameras or the cash registers. There are firms that specialize in this type of work. Worth mentioning is that sometimes the IRS wanted to segregate out some of the costs into land, which would not be entitled to any depreciation. I hope this helps. JRShaw
Cost Segregation is the separation of 1245 personal property, 1250 real property and land. (Land is not depreciable.) A cost segregation study can be done with new construction, purchase of existing building (purchase price allocation) or previously purchased construction (look back study). Depreciate each components of building according to it's life (see how to deprecation IRS).
Personal property 3, 5, 7 years
Land improvement 15 years
Real Property 27.5 years residential, 39 years commercial.
Each of these will be allocated with overheads such as architect fee, government permits, general contractor fee and others.
New construction, cost segregation will be done base on actual costs since all costs can be accountable from the bills.
Purchase of existing building (purchase price allocation) will require to look at building's age, condition, and segregation each component according valuation manual such as R.S. Means and/or Marshall & Swift.
Previously purchased construction (look back study) is very similar to purchase price allocation, but it needs an additional filling call "Application for change in accounting method" Form 3115
Cost Segregation will accelerate depreciation, give tax payer the benefit of better cash flow and return on investment.
