Cost Segregation, under the current tax law, is irrelevant and the time has passed for a normal cost segregation study. However, the reality in tax is that things change constantly, both through Congressional action and tax litigation. So it is well to keep this method in mind for when the changes come and cost segregation makes sense.
Cost Segregation is a process of analyzing fixed asset for their proper life. The shorter the life that a taxpayer can prove is legally appropriate means that the sooner the cost of the property is recovered. Buildings have a tax life of between 28.5 and 39.5 years. Taxpayers using these lives will get a very slow cost recovery. Cost Segregation studies often uncover opportunities to claim lives of between 7 and 20 years. This is a significant cost savings and can only be utilized by a study done according to the methods outlined in the IRS Cost segregation manual. Among other things, this manual requires the services of engineers and architects to verify the shorter lives. If you “do it at home”, you application will be rejected.
There are other benefits of a Cost Segregation study. The largest one is looking for “ghost” assets or duplicate assets. The discovery of these errors in your depreciation/property schedules can be fixed, sometimes in an amended property tax return. These benefits are multi-year. In my experience, at one facility only, the actual assets amounted to about $23 million, but the reported assets were about $56 million. If we assumed a commercial millage of, say 55 mills and a tax base of 50% of asset cost, the taxpayer faced a tax liability on the “ghost assets” of approximately $1.815 million. Had I not discovered this, the “unnecessary” payment would have gone on for several decades.