Calvetti Ferguson has provided a case study to exemplify its service offerings and value add while performing a cost segregation study in the manufacturing industry. Throughout our analysis, the client can expect:
- Potential tax savings: One of the primary benefits of a cost segregation study is the potential for significant tax savings. Clients may realize immediate tax benefits by accelerating depreciation deductions, improving their overall financial position.
- Compliance with tax regulations: A thorough cost segregation study ensures compliance with relevant tax laws and regulations. By adequately documenting asset classifications and depreciation schedules, clients mitigate the risk of audits and penalties from tax authorities, providing peace of mind and financial security.
- Strategic Financial Planning: Cost segregation offers clients valuable insights into their property’s tax implications and financial performance. Armed with this information, they can make informed decisions about future investments, asset management strategies, and overall financial planning to optimize their real estate portfolio’s profitability and long-term success.
Background
A manufacturing company contacted Calvetti Ferguson to conduct a cost segregation study on its newly purchased industrial site. The company had not yet capitalized on a cost segregation study. It was interested in taking advantage of accelerated depreciation for this significant real estate asset currently being depreciated over a 39-year period.
Similarly, once the client provided all closing documents, as-built construction plans, appraisals, and site survey documents, we could perform the site visit to document the condition of the site as required by the IRS.
We scheduled the site visit a few days after the client officially closed the transaction.
Analysis and Solution
Our team worked within the client’s availability to schedule site visits around the building’s closing date. We completed this project within the client’s deadline so they could effectively plan for their year-end close of books.
Cost Segregation studies are highly engineering-intensive and require the provider performing these studies to “rebuild” the building on paper to accurately assign specific building costs to each component of the building. A site visit is required to remain compliant with IRS standards.
Value
With the cost segregation study, we reclassified 61% of the newly purchased building assets into five-, seven-, and 15-year depreciable tax life instead of all being in standard 39-year depreciation. With bonus depreciation, that means 80% of those reclassified assets could be depreciated the same year the taxpayer placed the building into service. The building had a $5 million taxable basis and was able to depreciate almost $2.4 million in the first year.
About Cost Segregation Studies
Cost segregation is a tax planning tool that allows companies and individuals to increase their cash flow by accelerating depreciation deductions and deferring federal and state income taxes.
The benefits of larger tax deductions from cost segregation studies are improving cash flow, reducing upfront income tax costs, maximizing annual depreciation, lowering the cost of capital, and increasing shareholder value.
Some of the reasons to consider contacting Calvetti Ferguson for a cost segregation study are if you are involved in commercial real estate activities like:
- Constructing a building
- Purchasing real estate
- Remodeling or renovating a facility
Contact Us
Calvetti Ferguson works with middle-market companies, private equity firms, and high-net-worth individuals nationwide. Regardless of the complexity of the compliance, assurance, advisory, or accounting need, our team is ready to help you. Please complete the form below, and we will follow up with you shortly.