Cost segregation is the process of identifying personal property assets that are grouped with real property assets, and separating them out for tax reporting purposes. Many capital building projects do not do a good job of tracking the personal property assets capitalized as part of the building costs. There can be significant costs associated and without a cost segregation they will be depreciated over a longer useful life which raises your taxable liability.
The cost segregation study identifies and reclassifies personal property assets to shorten the depreciation time for taxation purposes, which reduces current income tax obligations. Personal property assets include a building’s non-structural elements, exterior land improvements and indirect construction costs. These types of construction-related costs can be depreciated over a shorter tax life (typically 5, 7 and 15 years) than the building (39 years for non-residential real property). Personal property assets found in a cost segregation study generally include items that are affixed to the building but do not relate to the overall operation and maintenance of the building.
Many customers aren’t aware that cost segregations can be posted and tracked on assets in SAP. Many struggle to keep the cost segregation data outside of SAP which increases tracking costs and invalidates the quarterly estimates generated from SAP.
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