Cost segregation studies are a popular way to accelerate the return on investment on newly constructed or purchased buildings.  They can increase the allowable tax depreciation expense available in the early years of ownership. A cost segregation study requires knowledge of IRS regulations that allow building costs to be depreciated more quickly. Examples of such costs include special purpose electrical and plumbing fixtures that can be depreciated as five, seven  or 15 year property rather than over the entire depreciable life of the building. Many of these items become eligible for 50% bonus depreciation in the first year. In addition, for buildings constructed in Washington state, some costs related to manufacturing processes are exempt from retail sales tax under the Manufacturing Machinery & Equipment exemption.
 
Result #2: On a $1.3 million construction project we reclassified over 40% of the total cost to five, seven or 15 year property increasing the depreciable expense for the building by nearly $300,000 in the first five years. We also identified more than $60,000 of costs incurred in construction that were exempt from Washington state sales tax saving the owner an additional $5,000.
 
If you have questions about Cost Segregation Studies, contact Darcy Kooiker, CPA, Principal. dkooiker@bpcpa.com 425.289.7609