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Cost Segregation Studies Help Businesses Write Off Investments Faster

By: Margaret P. Amsden, CPA, MST

Many business owners find it more beneficial to own the building their business occupies than to lease the building from someone else. A potential bump-in-the-road occurs when the business owner has to invest significant capital to build or acquire a building, but is limited to recovering that investment over 39 years as it is depreciated.

An option that will reduce the after tax cost of owning real estate is a cost segregation study. These studies reallocate portions of the cost of the building to assets that have a shorter write-off period. And, these studies result in the business owner benefiting from the deduction of his initial investment sooner. The end result is a reduction in the cost of the building on a present value basis.

Cost segregation studies benefit businesses involved in:

• New construction, and
• Acquisition of existing buildings

Additionally, in a taxpayer favorable move, the Internal Revenue Service recently issued procedures that make it easier and less costly for business owners with existing buildings to also take advantage of the benefits that come from cost segregation studies. The recent procedure allows business owners to take an immediate one-time "catch-up" deduction for the accelerated recovery gained from a cost segregation study.

Cost segregation studies are now more beneficial for companies:

• With existing buildings that were built or acquired in recent years; and
• With existing buildings when substantial improvements are made

Cost segregation studies will benefit companies in almost any line of business from retail, to manufacturing, to distribution. But, the benefit that is derived will vary depending on the type of building and use of that building. For example, large manufacturing facilities will reap greater benefits than warehouses.

To determine if you may benefit from this opportunity, please contact Margaret Amsden at 248.208.8860.

248.208.8860 | 2000 Town Center, Suite 1800 | Southfield, MI 48075

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