FGMK can assist clients in generating significant tax savings and cash flow with a cost segregation study. Cost segregation is a simple but powerful technique to maximize depreciation deductions on real estate owned. Cost segregation, performed through a professional study by FGMK where current laws and regulations are employed, is fully sanctioned by the Internal Revenue Service.
How It Works
Buildings generally must be depreciated over 39 years for nonresidential property and 27.5 years for residential property. However, almost all properties contain significant amounts of personal property (5 or 7 year life) and land improvements (15 year life). By carving out the maximum amount of such components with shorter depreciation lives with a detailed, engineered study, FGMK is able to generate significant tax savings and cash flow for the property owner.
How Much You Could Save
Results vary with each property, but present value of the tax savings is typically 5% of the building's cost, with most of that savings realized in the first few years. That would be a savings of $50,000 for every $1 million of building cost; this is merely a rough benchmark. Prior to any cost segregation study decision, a cost-benefit analysis should be completed. FGMK can calculate a more detailed estimate of tax savings, based upon preliminary building data and determine if the property was acquired or constructed in prior years based upon a review of prior year tax returns.
The FGMK Edge
FGMK's cost segregation studies utilize experienced engineers who combine unsurpassed expertise in architecture and construction principles with tax professionals who possess strong knowledge of the IRS' tax rules and regulations for depreciation. They bring a unique combination of skills to the task, understanding the building components that qualify for shorter depreciation lives and knowing how to find them. The team works together to obtain the maximum allowable depreciation possible. We "kick the tires" by inspecting the entire building inside and out, analyze the building's architectural and mechanical blueprints and drawings, study any contractor's detailed statements and gain an understanding of the purpose and use of the property.
Eligible Properties
Virtually any kind of real estate owned is a candidate for a cost segregation study:
- Newly constructed buildings and renovations
- Purchases of existing buildings
- Leasehold improvements owned by either the landlord or tenant
- Existing buildings presently owned that were acquired in the past
Not Too Late For Property Already Owned
If you have been depreciating your building over 27.5 or 39 years, it is not too late. FGMK can perform the same cost segregation study, and the IRS allows all of the additional depreciation that was missed over the years to be deducted, all at once in the current year of the study. The IRS sanctioned this catch-up with a revenue procedure, which FGMK understands how to follow to your full advantage.
Other Benefits
- IRS audit protection: FGMK's workpapers and reports are fully detailed and supported, essentially using the IRS' own depreciation rules to your benefit. An IRS examination taking place years after our study would have an extremely difficult time disputing our findings, and we have never had our findings overturned.
- Property tax and transfer tax savings: Removing the personal property components from the real property can, depending on the jurisdiction, reduce the real property's value for property tax and transfer tax purposes.