Cost Segregation Studies
An Andersen Tax cost segregation study (CSS) can generate significant tax benefits by accelerating the depreciation deductions for your new, existing, or purchased real estate or leasehold improvements.
By coupling our team’s engineering and accounting experience, Andersen Tax can help your company maximize the amount of personal property and land improvements that can be reclassified from real property. This tax deferral strategy can result in reduced federal (and some state) taxes, as well as increased cash flow. Our CSS reports are also developed to aid our clients in conforming to the final tangible property regulations. By separating the building into its component parts, clients will be able to determine whether they will be able to expense future renovations, or deduct the remaining tax basis of replaced property through a partial disposition election. Reducing real property basis can also create a permanent tax benefit by reducing state and local property taxes. Some of our areas of expertise include:
If you are currently bidding on or recently engaged in a construction project, Andersen Tax will work with the general contractor before and during construction to maximize personal property and site improvement classification. This provides another opportunity to optimize short-lived property identification related to analyzing actual costs as opposed to estimated costs. In addition, the Department of Treasury issued final regulations in 2014 allowing taxpayers to expense certain real property and leasehold improvements. Coupling this with the increased deductions from personal property reclassification can yield tremendous tax savings.
An Andersen Tax cost segregation study can be performed retroactively for any real estate or leasehold improvement property constructed in prior tax years. Additionally, if the property was placed in service in certain years after September 11, 2001, there is an opportunity to take bonus depreciation on reclassified property. The bonus depreciation amount could range between 30% and 100% of the cost of the amount reclassified. Any understated depreciation, including bonus depreciation, can be deducted in the current tax year by filing a Form 3115, Application for Change in Accounting Method.
Capital vs. Expense Analysis
An Andersen Tax capital versus expense review can generate significant tax benefits by identifying, supporting and quantifying costs that were capitalized improperly for federal income tax purposes. This is done by identifying costs that can be expensed under final regulations that were effective in 2014. Our team can assist taxpayers in applying for a change in accounting method and taking the current year catch-up deduction.
Energy Efficient Commercial Building Deductions
Sec. 179D allows for an immediate deduction of up to $1.80 per square foot for commercial buildings that achieve a 50% or greater reduction in total energy and power costs for property placed in service by December 31, 2016 and after 2005. Commercial buildings include office buildings, retail facilities, industrial buildings, as well as governmental and public buildings and must be located in the United States. The building may involve new construction or the renovation or retrofit of an existing location. Partial deductions are available for building systems in the case of buildings that do not meet the overall requirement. Examples of improvements may include: more efficient lighting; more efficient HVAC equipment and controls; geothermal systems and heat pumps; better insulation and windows/reflective coatings. When energy efficient commercial building property is installed on or in government-owned buildings, the Sec. 179D deduction can be allocated to the person primarily responsible for designing the property.
Evaluation and Support Services
Andersen Tax can provide guidance on evaluating exposure created by in-house cost segregation studies and/or outside tax consultants for uncertain tax positions. Andersen Tax also provides IRS examination support on any cost segregation issues.