Cost Segregation Studies

Primary Contact

Joe Pigga
570.504.3128
jpigga@parentenet.com

Brochures (PDF)

Enhanced Depreciation Deductions and Improved Cash Flow

Parente Randolph's cost segregation studies can save you money.

What exactly is cost segregation? It’s an analysis of the capital expenditures or investment made in a residential or commercial property that results in a more precise classification of costs between real and personal property. At Parente Randolph, we view it as a strategic tool that allows companies and individuals to increase their cash flow by maximizing depreciation benefits.

Why perform a cost segregation study? It can be used for the purpose of determining tax deductions for depreciation. A cost segregation study is used to identify, segregate and reclassify components of a project into asset classes that can be depreciated over shorter periods of time, while using methods that accelerate the amount of the deductions.

What can you gain from a study? The value of the process is the increased cash flow generated by the tax deferral, which you can receive through accelerated depreciation deductions.

Is your structure eligible for cost segregation? The optimal time to initiate a cost segregation study is at the beginning of a project, when plans to build, remodel or expand a building are first drafted. However, eligibility extends to the following:

Buildings and facilities that have been newly constructed since 1987
Buildings and facilities constructed before 1986, but acquired in a taxable transaction after 1986
Building renovations and additions completed after 1986

How Cost Segregation Studies Work

A cost segregation study from Parente Randolph will classify various project costs into specific asset groups.

The costs to be segregated include the actual direct costs of construction or acquisition and the indirect or “soft costs” (i.e., legal, architectural, engineering fees, appraisals, construction management). These assets will be categorized based on the appropriate depreciable lives for income tax purposes.

By identifying, segregating and reclassifying costs related to five, seven, 15 and 20-year property from the 27.5 or 39 real property categories, such property can be depreciated over a much shorter time frame. In addition, the five, seven, 15 and 20-year property classes are depreciated using accelerated methods, which further increase the deductions in early years. The tax deferral savings can be further increased if the costs qualify for “bonus depreciation” and/or the Internal Revenue Code Section 179 expense allowance.

Parente Randolph’s Expertise in the Field

Parente Randolph provides a quality, detail-oriented engineering and construction cost analysis. Our approach is aligned with what the IRS considers a quality cost segregation study, elements of which include the following:

Use of expert and experienced professionals
A clearly defined methodology, focusing on documentation and legal authority
Site visits and interviews with appropriate personnel
Unit cost determination and use of engineering data
Cost identification, organization and reconciliation

Parente Randolph’s analyses include the following items:

A summary of the study results
A narrative discussing theory and rationale used
Schedules of assets and direct/indirect costs
Schedules detailing property units and costs, along with discussion of procedures and methodology employed