Cost Segregation Studies
A WTAS 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 we can help your company maximize the amount of personal property 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. 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:
Sec. 179(D) for Energy Efficient Commercial Building Deductions
Originally enacted as part of the Energy Policy Act of 2005, Sec. 179(D) allows for an immediate deduction of up to $1.80 per square foot for “commercial buildings” which achieve a 50% or greater reduction in total energy and power costs. Commercial buildings include office buildings, retail facilities, industrial buildings, as well as governmental and public buildings. This deduction applies for property placed in service from January 1, 2006, through December 31, 2013. In order to qualify for this deduction the building must be located in the United States. The building may involve new construction or the renovation or retrofit of an existing location.
A partial deduction is available ranging from $0.30 to $0.60 per square foot for interior lighting; $0.60 per square foot for HVAC and hot water system; and $0.60 per square foot for building envelope. Examples of improvements may include: more efficient luminaries, ballasts, and lamps/bi-level switching; more efficient HVAC equipment and controls, geothermal systems and heat pumps; better insulation and windows/reflective coatings.
Sec. 179(D) for Government-Owned Buildings
When energy efficient commercial building property is installed on or in government-owned buildings, the owner of the property may allocate the Sec. 179(D) deduction to the person primarily responsible for designing the property (referred to as "the designer.") A designer may include the architect, engineer, contractor, environmental consultant or energy services provider who creates the technical specifications that incorporate energy efficiency into the building. If more than one designer is responsible for creating the technical specifications, the owner of the building may designate which designer is primarily responsible and allocate the full deduction to that designer, or may allocate the deduction among several designers.
CSS – Pre-Construction Services
If you are currently bidding on or recently engaged in a construction project, WTAS 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, recent Department of Treasury regulations allow the taxpayer to expense certain real property and leasehold improvements. Coupling this with the increased deductions from personal property reclassification can yield tremendous tax savings.
CSS – Retroactive Studies
A WTAS 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, Change in Accounting Method.
Capital vs. Expense Review
Recent tax guidance allows the taxpayer to expense certain costs associated with real property and leasehold improvements. This may dramatically increase a company’s tax deductions and generate cash flow.
CSS – Evaluation and Support Services
WTAS can provide guidance on evaluating exposure created by in-house cost segregation studies and/or outside tax consultants for uncertain tax positions. WTAS also provides IRS examination support on any cost segregation issues.