Cost Segregation

Cost segregation can and should begin at the time of purchase of the property or can be employed many years after the property was purchased. In either case, a cost segregation study is performed to identify, separate, and reclassify qualified real and personal property into shorter depreciable tax lives, using methods supported by more than 75 prior IRS rulings, procedures and court cases.

The first step is typically a visit to the facility to ensure that all qualifying personal property and land improvements are identified. After the field identification, an engineering report is prepared that quantifies the costs of the personal property and land improvements being reclassified. The engineering report is based on various project documents, including construction drawings, building specifications, contractor pay requests, change orders; discussions with your general contractors, architects and/or engineering firms; and industry-accepted cost estimating practices.

Typically, 20% - 45% of project costs can be reclassified from 39-year or 27.5-year property to 5-year or 7-year personal property, depending on the type of business property being segregated. This means that most property acquisitions exceeding $500,000, including leasehold improvements, are a viable candidate for cost segregation.

The Holloway Consulting Group has experienced construction professionals who understand construction costs, as required by internal IRS audit guidelines. We have performed numerous cost segregation studies and can help with cost segregation in at least three ways. First, we can help clients understand the costs and benefits of cost segregation for your property, at no cost to you, before undertaking the actual study. Second, should the client decide to undertake a cost segregation study, the Holloway Consulting Group will provide a detailed report that segregates the property into personal property (5-year or 7-year life), land-improvement property (15-year life) and real property (39-year or 27.5-year life). The report will also include relevant court cases, revenue rulings and tax citations, as well as photographs, to support our decisions regarding identification of personal property and land-improvement assets. Third, the Holloway Consulting Group will work with our client’s tax professional, as needed, to ensure that the client understands the property classifications detailed in our report.

Please contact us about your consulting needs.