Tax Saving and Increase Cash Flow

Does it sound too good to be true? Cost segregation is a low-risk, high-return method to recover capital investments and improve cash flow. The McKonly & Asbury Cost Segregation Service enables entities to retain cash longer by accelerating depreciation deductions of facility components. This is accomplished by categorizing new, renovated, and existing building costs into their underlying components.

Eligible Structures

The best time to prepare for the service is when the plans to build, remodel, or expand a facility is first drafted. Eligible structures include:

• Facilities constructed after 1987
• Facilities constructed before 1986, but acquired in a reportable transaction after 1986.
• Facility renovations and additions completed after 1986.

Current Tax Law

Under current tax law, the cost of a non-residential building is depreciated over 39 years, but personal property items and land improvements are depreciated over 15, 7, or as few as 5 years. Accelerating the depreciation deduction of qualifying components allows for increased current tax deductions. Deductions equate to lower current tax payments and increased current cash flow.

Entities owning existing buildings being depreciated over 39 years are not excluded from obtaining the benefits of the Cost Segregation Service. By reclassifying component assets to their correct lives, entities can deduct a “catch-up” provision in the current year. Benefits will continue to be realized in future years through accelerated tax write-offs.

Benefits of Cost Segregation Service

The categorization of building components through M & A’s Cost Segregation Service typically pays for itself and provides a sizable return on investment. Benefits include:

• Reduces income taxes
• May reduce real estate and personal property taxes
• Improves cash flow
• Improves asset classification
• Maximizes tax credits
• Initiates ‘catch-up’ depreciation for misclassified assets

Other Advantages

Recent tax changes provide yet another advantage. Personal property and land development purchased between May 5, 2003 and December 31, 2004 are eligible for an immediate 50% write-off. Similar property purchased between September 11, 2001 and May 5, 2003 is eligible for a 30% write-off. In addition to shortening the recovery period of new assets, entities can recognize considerable tax savings by utilizing this “bonus” depreciation.

 The McKonly & Asbury Expertise

Cost Segregation Service requires the team work of professionals experienced in federal taxation, construction cost analysis, property accounting, and engineering.

The McKonly & Asbury approach is to organize the engagement team and provide an efficient, comprehensive, and fully documented service for our clients.

For more information on cost segregation service contact us:

Kurt Trimarchi, Partner ktrimarchi@macpas.com