Are There Huge Tax Dollars In Your Walls?

4/21/2017 - By John Mascaro, CPA

Would you invest $10 to get an immediate potential return of $100? Of course you would.

Would you call your CPA to find out what your estimated benefit might be if you could get that initial estimate for F-R-E-E? Of course you would.

While the above $10 for $100 example is for illustrative purposes and your actual benefit may vary, that’s typically the cost benefit achieved when a cost segregation study is used to properly re-classify costs of a purchase or construction of a commercial building used in your trade or business or rented to others. And frankly, our experience shows that the benefit described above is not far from reality.

How It Works

A cost segregation study is an analysis of buildings overall costs performed by an engineering firm specializing in such IRS based studies, and conducted in coordination with your CPA. Its main purpose is to more properly classify and quantify how much of the costs of a commercial building can be depreciated over much shorter “recovery periods” e.g. 5, 7, 10, 15 years than the 27.5 or 39 year periods required by tax law for mere “real property” used in a trade or business. Under IRS guidelines, a cost segregation study must be performed by a reputable engineering firm with expertise in this highly specialized area of tax.

That’s where we come in. Saltmarsh partners with some of the leading engineering firms in the United States to conduct its cost segregation studies. So…when you come to Saltmarsh for tax deductions from cost segregation, you have the best accounting, tax, and engineering minds going to work on your project.

What Types of Components Qualify?

This reclassification of costs is not of the structural building itself, which is considered “real property” (i.e. real estate), but rather, of various separate components of the building considered to be “tangible personal property” often overlooked by a bookkeeper or prior accountant. This oversight, however, usually short-changes property owners of cash-saving tax deductions in the early years of the operation of the property.

A few examples of tangible personal property components routinely misclassified as “building” include:

Dedicated kitchen equipment
Certain flooring related costs
Plumbing systems
Electrical systems
Telecommunications systems

What Types of Buildings Benefit Most?

You name it! Here are just some examples of the types of properties that benefit:

Bank branches
Hotels/motels
Industrial facilities
Manufacturing facilities
Nursing homes
Shopping centers, Sports facilities, Storage facilities
Warehouses and distribution centers

The adjustment from a cost segregation study often has a dramatic impact on your bottom line! For example, a successful cost segregation study will produce approximately $50,000 to $100,000 of immediate cash flow for every $1 million of commercial building cost by way of the tax savings attributable to the accelerated depreciation.

It Gets Better!

Saltmarsh and its engineering firm partner will provide you with an initial estimate of your potential tax benefit free of charge! You can assess the pros and cons and decide to proceed or not at no cost to you.

But It Gets Even Better Than That!

Should you proceed with your cost segregation study and IRS challenge the reclassification of costs in an examination, Saltmarsh’s engineering firm partner will defend your cost segregation study performed in your behalf FREE OF CHARGE! That’s right – free audit defense of your study if challenged by IRS.

So…the only question left is: what are you waiting for?

If you have any questions about cost segregation for your business or want to get started, email me or contact a member of our Tax Consulting team today.

About the Author | John Mascaro, CPA

John is adept in helping companies develop and execute complex domestic and international tax strategies. He has served some of the world’s largest companies in varied industries, including IBM, Schlumberger, Siemens; and later specialized in the entertainment and media industry serving such notables as Viacom, Blockbuster Entertainment, MTV, VH1, Nickelodeon, SONY Pictures, SONY Music, Newsweek Magazine, McCann Erickson Advertising, Gruner & Jahr Publishing, Reuters and numerous entertainment and media celebrities.

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