Calvetti Ferguson has provided a case study to exemplify its service offerings and value add while performing a Section 179D and cost segregation study in the healthcare 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.
- Follow-Up Support: Cost segregation specialists often offer ongoing support to clients, including assistance with any inquiries or audits from tax authorities related to the study.
Background
A healthcare facility’s CFO contacted Calvetti Ferguson to conduct a cost segregation study on its newly constructed complex, complete with medical facilities, to increase its cashflow.
Calvetti Ferguson also recommended the client perform a Section 179D study since the building was also eligible for that incentive.
The client supplied all construction drawings from the as-built condition, project budget, and contractor’s application for payment. Once our team received these documents, we could independently perform the Section 179D and cost segregation study while limiting the requests of the client to respect their time and schedules. We only required input from the site management team to schedule the site visit, which were unobtrusive and took only a few hours to complete. By performing both a Section 179D and Cost Segregation study at the same time, only one site visit was required, limiting any interruptions to our clients business.
Analysis and Solution
Calvetti Ferguson recommended that a Section 179D and cost segregation study be performed on every building that had been newly constructed or performed upgrades to the following energy efficient systems:
- HVAC and hot water systems
- Interior lighting
- Building envelope systems
Cost segregation studies are highly engineering-intensive and require the engineer to “rebuild” the facility on paper to accurately assign specific costs to each building component. A site visit is necessary to remain compliant with IRS standards.
For the purposes of Section 179D, we were able to analyze any building constructed after January 1, 2006. The building that was part of the Section 179D study was analyzed using DOE-approved software. Our technical team took the construction plans and created a 3D model to analyze the building’s energy efficiency. In addition, our team performed site visits by a licensed engineer, and certification of the study by a licensed engineer.
Value
Overall, our team performed a cost segregation study that reclassified 39-year depreciable assets into over $9 million of a five- and 15-year depreciable tax life. The $9 million of reclassified assets were eligible for a bonus depreciation of 100%. Similarly, the Section 179D study on the company’s building resulted in over $80,000 in accelerated depreciation.
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
About Section 179D
The energy-efficient commercial buildings deduction, Section 179D, allows commercial building owners in various industries to claim a tax deduction for new construction or renovation projects completed since 2006. A maximum deduction rate of $1.80 per square foot is available for projects placed into service before 2023. The Inflation Reduction Act enhances Section 179D, increasing the maximum deduction to $5.00 per square foot for projects completed in 2023 and the future.
Contact Us
Calvetti Ferguson works with middle-market companies, private equity firms, and high-net-worth individuals across the country. Regardless of the complexity of the compliance, assurance, advisory, or accounting needs, our team is ready to help you. Please complete the form below, and we will follow up with you shortly.