Have you recently built or purchased a new facility? Do you plan to break ground or acquire a building? Our tax team is always looking for ways to help you manage these challenges. That’s why we offer our clients a unique tax-saving advantage through Cost Segregation Services. Through our alliance with the BDO Alliance USA, we can help make sure your costs are segregated properly to qualify for the appropriate annual tax depreciation deduction.
What is the Service?
When segregating the costs of a construction project, it is easy to properly identify and depreciate the costs of manufacturing equipment, office furniture and fixtures, and computer equipment over 5 years or 7 years for federal tax purposes. However, the construction-related costs, which may account for as much as 80 percent to 90 percent of the overall project cost, are all too commonly lumped together as real property with a depreciable life of 39 years. This means that the annual tax depreciation deductions for a facility itself are spread evenly over the next 39 years. With this in mind, the primary goal of a cost segregation study of a newly constructed, acquired or expanded facility, or even a facility you’ve owned for several years, is to identify all construction-related costs that qualify for shorter depreciable lives. Reducing tax lives from 39 years (using straight-line depreciation) to 5 years, 7 years or 15 years (using accelerated methods) results in an opportunity to significantly reduce an organization’s tax liability. As an independent member of the BDO Alliance USA, GBQ Partners is able to access a group of structural engineers who specialize in cost segregation services. There is no cost in having the cost segregation professionals review your organization’s current, past or future construction costs and put a proposal together for identifying potential tax savings.
How Clients will Benefit
Clients who are planning to construct a new facility, or purchase or expand an existing facility may benefit by taking advantage of our Cost Segregation services. We can help our clients realize tax benefits through accelerated depreciation deductions. The net result is increased cash flow, which in turn can be used to underwrite current or future expansion. Clients who have already constructed or purchased buildings, but for whom no cost segregation was performed, may also benefit.
The approach to cost segregation involves demonstrating the tax savings of accelerated depreciation. In addition, cost segregation engineering professionals can calculate the potential tax savings that may be lost by neglecting to take advantage of accelerated depreciation. For example, it is reasonable to assume that for a typical 75,000 square-foot light manufacturing facility with construction costs totaling $3 million, 15 percent of the total construction cost will qualify a 7-year property and 10 percent of the total construction cost will qualify as 15-year property.