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By recovering costs over a shorter period of time, property owners can enjoy tax savings. A Cost Segregation Study (CSS) allocates the total building cost between real property (27.5 - 39-year life), personal property (5 - 7-year life), and land improvements (15-year life).
The example below presumes an office building purchased or newly constructed for $5,000,000, excluding land.
| Straight-line annual depreciation ($5,000,000 ÷ 39 years) before CSS Due to the mid-month convention, this figure times 5 does not equal to the 5-year total below. |
$128,205 |
| Depreciation deductions for the first 5 years without CSS | $635,684 |
| CSS reclassifies 16% of the total cost as 5-year personal property and 8% as 15-year land improvements | |
| Annual depreciation deduction for $1,200,000 ($5,000,000 x 24%) personal properties and land improvements depreciated over 5 and 15 years during the first 5 years | $904,602 |
| Annual depreciation deduction for $3,800,000 ($5,000,000 x 76%) real property depreciated over 39 years during the first 5 years | $483,120 |
| Depreciation deductions for the first 5 years with CSS | $1,387,722 |
| Five years with CSS | $1,387,722 |
| Five years without CSS (39-year straight-line) | $635,684 |
| Additional depreciation deduction after CSS over 5 years | $752,038 |
| Tax savings over 5 years assuming a 35% Federal tax rate | » $263,213 |
| Type of Building: Medical Suites / Cost: $1,140,000 |
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Situation: New Construction/Purchase 5-year property: 21% 15-year property: 24% 39-year property: 55% Estimated 5-Year Cash Savings: $95,270 Estimated 10-Year Net Present Value (NPV) of Deferred Taxes: $95,960 |
| Type of Building: Self-Storage Facility / Cost: $4,427,000 |
|
Situation: New Construction 5-year property: 18% 15-year property: 15% 39-year property: 67% Estimated 5-Year Cash Savings: $301,700 Estimated 10-Year NPV of Deferred Taxes: $301,000 |
| Type of Building: Professional Building / Cost: $1,737,000 |
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Situation: Step-Up and Look-Back 5-year property: 21% 15-year property: 4% 39-year property: 75% Estimated 5-Year Cash Savings: $115,800 Estimated 10-Year NPV of Deferred Taxes: $98,000 |
| Type of Building: Shopping Center / Cost: $1,784,000 |
|
Situation: Step-Up and Look-Back 5-year property: 17% 15-year property: 5% 39-year property: 78% Estimated 5-Year Cash Savings: $96,700 Estimated 10-Year NPV of Deferred Taxes: $92,000 |
| Type of Building: Hotel / Cost: $11,222,000 |
|
Situation: New Construction 5-year property: 14% 15-year property: 14% 39-year property: 72% Estimated 5-Year Cash Savings: $593,000 Estimated 10-Year NPV of Deferred Taxes: $588,000 |
| Type of Building: Mixed-Use / Cost: $45,000,000 |
|
Situation: New Construction 5-year property: 9% 15-year property: 2% 27.5/39-year property: 89% Estimated 5-Year Cash Savings: $1,059,000 Estimated 10-Year NPV of Deferred Taxes: $883,000 |
Our comprehensive feasibility analysis report includes an estimate of the likely tax savings and cash benefits derived from a Cost Segregation Study to assist you in making a sound decision.