Cost Segregation encompasses the process of classifying real property and personal property for constructed or acquired buildings. The quantification of these costs relies heavily on professional estimating techniques and utilizing construction drawings. Identifying personal property embedded in the real estate that supports equipment or is ancillary to the building's operation allows you to maximize the asset's depreciation, effectively reducing the cost of your construction or acquisition. Cost segregation can be applied to facilities in all industries such as hospitality, office, manufacturing, energy, wind farms, industrial, residential, and retail. At LaPete Yeates - we have analyzed over $10 billion in assets collectively in all these industries.
The complexities of the legislation enacted over the past 15 years has provided taxpayers changes in the lives and bonus treatment of costs related to:
Qualified leasehold improvement property
Qualified improvement property
Qualified restaurant property
Qualified retail improvement property
Since cost segregation studies can be applied in the current year, or retroactively with an automatic change in accounting method (with a corresponding Section 481(a) adjustment), it is important to understand these changes and when they were implemented. Recently, the enactment of the Tax Cuts and Jobs Act has made fixed asset based tax planning and cost segregation studies more valuable than ever. Self-constructed property with costs incurred and placed in service after September 27, 2017, have a significant benefit in maximizing personal property because it is now eligible for 100% bonus depreciation. A noteworthy change in the law now allows a taxpayer to take bonus depreciation on acquired property. For real estate companies, cost segregation provides the opportunity for full expensing even if the company elects out of the limitation of interest expense; for REITs, a cost segregation provides access to full expensing for distribution planning.