Cost Segregation Services

Cost Segregation Services

A Cost Segregation Study classifies business property,

like buildings, land improvements, etc., as either structural or

nonstructural components for federal tax purposes. Building

costs are typically depreciated over a 39-year period. Cost

Segregation identifies building costs that would typically be

depreciated over this period, then reclassifies those that should

have shorter recovery periods, ordinarily 5, 7, or 15 years. A

Cost Segregation Study appropriately classifies or reclassifies

nonstructural components into shorter recovery periods and

properly computes depreciation based on the results.

A Cost Segregation Study can provide numerous

benefits, the most significant being considerable income tax

liability reductions and increased cash flow. Not only can

this service be advantageous upon purchasing or renovating

a building, it also allows for the capture of catch-up depreciation

from current assets that may not have been appropriately

categorized at inception.

A Cost Segregation Study identifies components of a

property that can be categorized as nonstructural. The

classification allocates a greater amount of the total project

cost to shorter recovery periods, creating greater initial

expenses through accelerated depreciation computations.

The steps taken by WhippleWood CPAs to develop and

complete a Cost Segregation Study adhere to the procedures

of a Detailed Engineering Approach, currently the most

acceptable approach recognized by the IRS. These procedures

represent the most thorough and accurate process available.

Our approach for initiating and completing a comprehensive

Cost Segregation Study is summarized on the next page.

WWCostSegInsert 9/7/07 2:54 PM Page 1

Our process begins with a free analysis to determine the

potential benefits of a well-prepared Cost Segregation Study.

If a determination is made that the cost outweighs the benefits

of a study, we will not pursue the engagement. But we will

communicate any beneficial simplified tax planning positions

derived from our analysis.

A quality study includes a site visit to gain perspective and

understanding of the design and purpose of the project, along

with the use of specific assets. In-depth knowledge of the

physical structure facilitates identification of those building

components eligible to be classified as nonstructural. This

identification process can be quite complex and, in most

instances, requires an investigation based on the particular

facts and circumstances surrounding the property. Items that

may be requested include: site, architectural, and engineering

plans, as well as “as-built” drawings, blueprints and bid

documents. Photographs will also be taken at this time for

documentation purposes.

The study identifies and assigns specific project items to

appropriate property classes (i.e., land, land improvements,

building, equipment, furniture and fixtures, and other items of

tangible personal property). Nonstructural components will be

assigned class lives of 5, 7, or 15 years. Structural components

are assigned to the longer recovery periods of 27.5 and 39 years.

The assignments of these recovery periods are based on

extensive tax research and a thorough understanding of

applicable tax court cases.

Once the property components are assigned to their respective

recovery periods, a cost determination must be assigned to

each category and reconciled with the total project cost. Various

methods are used to allocate component costs appropriately.

However, the most efficient include the review of actual cost

records or estimates made by qualified professionals.

Each property component is categorized and depreciated

over the recovery period assigned by its Cost Segregation Study.

Depreciation is calculated according to current IRS guidance.

The study will also cite the appropriate taxing authority relied

upon when making determinations on certain components.

Successful implementation of Cost Segregation Study

procedures calls for qualified individuals who have a thorough

understanding of tax and engineering concepts alike. Our professionals

have the extensive experience and advanced education

to maximize your benefits and provide you with comfort that the

study has been completed with the highest degree of integrity

and accuracy.

WHIPPLEWOOD

WWCostSegInsert 9/7/07 2:54 PM Page 2