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Whether your company is constructing a new state-of-the-art building, expanding a current facility, or purchasing an existing building, the bottom line cost rises to the top of your concerns. Decisions are complex and escalating construction costs are inevitable. However, accelerated tax deductions increase the tax savings for many companies and effectively reduce the real building cost after the project is completed or acquired.
The Construction and Tax Services groups of Elliott Davis combine their deep experience and expertise to assist clients in maximizing tax depreciation deductions for federal and state income tax purposes during and after the construction, major renovation or the purchase of a building. Our groups coordinate their efforts to harness our broad construction industry experience and couple it with a comprehensive knowledge of tax allowances. The result is a dedicated team that ensures that clients will receive the full benefit of their investment.
Cost Segregation Studies Defined
A Cost Segregation Study separates the costs of tangible personal property, land improvements and indirect costs from building and improvement costs. After a comprehensive analysis of hidden costs, tax depreciation deductions for federal and state income tax purposes are maximized.
Throughout the process, building costs are classified into three categories - each with a different method of depreciation and period for depreciation recovery:
| Category |
Depreciation Method |
Period for Depreciation Recovery |
| Tangible Personal Property |
200 % Declining Balance |
5 or 7 years |
| Land Improvements |
150 % Declining Balance |
15 years |
| Real Property |
Straight-Line |
39 Years |
The proper classification of tangible personal property or land improvements can accelerate your tax deductions. Our team will be the project manager for performing and documenting the entire process - often resulting in reclassifying approximately 20 to 50 percent of the total project cost.
Property Types Benefiting from a Cost Segregation Study:
- Newly constructed buildings
- Existing building purchases
- Existing buildings undergoing significant renovation or expansion
- Leasehold improvements
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