Cost Segregation - NexGen Advisors LLC

Cost Segregation

NexGen, together with Ernst & Morris Consulting Group, specialize in performing Cost Segregation Studies. As a part of these studies, assets, and their attendant costs are identified and grouped according to required depreciable recovery periods for federal tax purposes.

The combination of over 50 years of NexGen's federal, state and local tax expertise with Ernst & Morris's unparalleled engineering approach to cost segregation, results in the most comprehensive and cost effective cost segregation analysis available in today's market.

We perform these extensive studies to provide significant improvement in after-tax cash flow, reduction in real property taxes, increases in state investment tax credits and to provide the business owner an opportunity to claim "catch-up" additional depreciation deductions attributable to prior years.

Overview

All properties constructed, acquired, or renovated after 1986 qualify for cost segregation.

In a cost segregation study, certain costs previously classified as subject to 27.5 or 39-year depreciation, can instead be classified as personal property or land improvements, with a 5, 7, or 15-year life using accelerated methods of depreciation. An "engineering-based" study allows a building owner to depreciate a new or existing structure in the shortest amount of time permissible under current tax laws.

The benefits of a cost segregation study include:

An immediate increase in cash flow
A reduction in current tax liability
The deferral of taxes
The ability to reclaim "missed" depreciation deductions from prior years (without having to amend tax returns)

COST SEGREGATION DEFINED
"Engineering-based" cost segregation enables commercial real estate owners to reallocate real property (under Code Sec. 1250) to personal property (under Code Sec. 1245). This results in a substantially shorter depreciable tax life and accelerated depreciation methods.

WHY A SPECIALIST IS NEEDED
For both new and existing properties, the IRS recommends that engineering-based cost segregation studies be performed in order to realize the maximum depreciation benefits. Engineering-based cost segregation studies provide more precisely segregated property information, giving CPAs the information and detailed supporting documentation they need to meet with strict IRS regulations and requirements for audit defense.

WHAT TYPES OF ITEMS ARE IDENTIFIED?
Through an engineering-based cost segregation study, a wide range of building components, such as electrical installations, plumbing, mechanical components, and finishes can be identified and reclassified into shorter-lived asset classes. This adds up to substantial savings to the client.

WHAT ROLE DOES "TIME VALUE OF MONEY" (TVM) PLAY?
Cost segregation is based on the fundamental principle that "a dollar today is worth more than a dollar tomorrow". The same logic applies to the statement: "a tax deduction today is worth more than a tax deduction tomorrow". By accelerating a buildings' depreciation, property owners can lower their tax liability and thus realize a significant increase in cash flow. This larger cash flow-resulting from postponing tax payments-is available for other investments.

Strategies

Cost segregation studies are one of the most valuable tax strategies available to owners of commercial real estate today. This increasingly popular phenomenon offers facility owners the opportunity to defer taxes, reduce their overall current tax burden, and free up capital by improving their current cash flow. Virtually every taxpayer who owns, constructs, renovates, or acquires a commercial real estate structure stands to benefit from a cost segregation study. By engaging the expertise of NexGen partnered with Ernst & Morris, property owners can be assured that their study will stand up to the strictest scrutiny of IRS auditors.