Cost Segregation
Is an IRS APPROVED Method to reduce or eliminate federal income taxes
Cost Segregation
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Sari Quinlan
Director of Federal Tax ReductionGet a Free Cost Segregation Analysis & Estimate Your Tax Savings
And a preliminary analysis on your property emailed to you within one business day. Your free property analysis includes a step-by-step guide on how to claim your savings and a toll-free hotline to answer your questions.
Bonus Depreciation vs. Cost Segregation
Bonus depreciation is cost segregation!
Bonus Depreciation is a specialized type of cost segregation. Cost Segregation, in the broader sense, is a process where a commercial, for-profit venture may identify or segregate the personal property assets and the structural component of a property for the purpose of more accurately detailing their respective tax depreciation.
In its current form, Bonus Depreciation, as established by the Tax Cuts and Jobs Act of 2017(TCJA), is a tax incentive provided by the government that allows an owner of a for-profit commercial asset to immediately deduct a large percentage of the purchase price of eligible assets acquired or constructed within the mandated time frames, thereby significantly accelerating depreciation. However, to be eligible, the asset must be purchased or constructed after September 27, 2017, and/or before January 1, 2023.
Highlighted Projects
Sample Of Actual Study Results
| Asset Type | Purchase Year | Improvement Basis | 1st Year Additional Depreciation | 1st Year Tax Savings at 37% Bracket | Year 1 Payback | Short Life % |
|---|---|---|---|---|---|---|
| Apartment-High rise | 2022 | $572,150 | $176,657 | $65,363 | 13 to 1 | 30.90% |
| Apartment Garden | 2022 | $11,300,933 | $11,302,955 | $4,182,093 | 836 to 1 | 31.00% |
| Apartment-High rise | 2022 | $19,380,798 | $19,382,820 | $7,171,643 | 1,434to 1 | 29.40% |
| Apartment Garden | 2022 | $45,145,331 | $45,147,353 | $16,704,521 | 3,341 to 1 | 36.30% |
| Apartment High Rise | 2022 | $88,970,000 | $18,310,176 | $6,774,765 | 1,355 to 1 | 20.60% |
| Asset Type | Purchase Year | Improvement Basis | 1st Year Additional Depreciation | 1st Year Tax Savings at 37% Bracket | Year 1 Payback | Short Life % |
|---|---|---|---|---|---|---|
| Hotel Motel Low Rise | 2022 | $1,854,575 | $569,862 | $210,849 | 42 to 1 | 30.70% |
| Hotel/Motel(Low-Rise) | 2022 | $4,169,000 | $1,377,992 | $509,857 | 102 to 1 | 33.10% |
| Hotel/Motel(High-rise) | 2022 | $9,335,160 | $3,638,924 | $1,346,402 | 269 to 1 | 39.00% |
| Hotel/Motel (High Rise) | 2022 | $38,429,207 | $10,113,229 | $3,741,895 | 748 to 1 | 26.30% |
| Hotel Motel Low Rise | 2022 | $63,250,701 | $22,756,681 | $8,419,972 | 1,684 to 1 | 36.00% |
| Asset Type | Purchase Year | Improvement Basis | 1st Year Additional Depreciation | 1st Year Tax Savings at 37% Bracket | Year 1 Payback | Short Life % |
|---|---|---|---|---|---|---|
| Office Building(Low-Rise) | 2022 | $480,000 | $482,022 | $178,348 | 36 to 1 | 28.60% |
| Office Building(Low-Rise) | 2021 | $903,750 | $905,771 | $335,135 | 67 to 1 | 37.50% |
| Office Building(Low-Rise) | 2021 | $1,915,202 | $1,917,223 | $709,373 | 142 to 1 | 30.00% |
| Office Building(Low-Rise) | 2022 | $3,145,000 | $3,147,022 | $1,164,398 | 233 to 1 | 22.60% |
| Office Building(Low-Rise) | 2022 | $5,000,000 | $5,002,022 | $1,850,748 | 370 to 1 | 24.90% |
| Asset Type | Purchase Year | Improvement Basis | 1st Year Additional Depreciation | 1st Year Tax Savings at 37% Bracket | Year 1 Payback | Short Life % |
|---|---|---|---|---|---|---|
| Retail Multi Tenant | 2022 | $250,690 | $252,712 | $93,503 | 19 to 1 | 32.80% |
| Retail Single Tenant | 2022 | $870,000 | $872,022 | $322,648 | 65 to 1 | 31.60% |
| Retail Multi Tenant | 2021 | $1,836,338 | $1,838,359 | $680,193 | 136 to 1 | 30.30% |
| Strip Shopping Center | 2022 | $2,940,000 | $1,041,712 | $385,433 | 77 to 1 | 35.40% |
| Strip Shopping Center | 2022 | $6,437,898 | $2,108,015 | $779,966 | 156 to 1 | 32.70% |
| Asset Type | Purchase Year | Improvement Basis | 1st Year Additional Depreciation | 1st Year Tax Savings at 37% Bracket | Year 1 Payback | Short Life % |
|---|---|---|---|---|---|---|
| Auto Service Garage | 2021 | $1,447,322 | $1,449,343 | $536,257 | 107 to 1 | 34.90% |
| Auto Dealer Full Service | 2022 | $8,330,000 | $2,661,917 | $984,909 | 197 to 1 | 32.00% |
| Medical Office | 2022 | $9,268,066 | $3,487,452 | $1,290,357 | 258 to 1 | 37.60% |
| Mini-Warehouse | 2022 | $8,128,560 | $1,602,395 | $592,886 | 119 to 1 | 28.30% |
| Restaurant | 2021 | $429,000 | $192,409 | $71,191 | 14 to 1 | 44.90% |
| Warehouse | 2022 | $865,967 | $253,521 | $93,803 | 19 to 1 | 29.30% |
Why Do a Cost Segregation Study?
- Increase in cash flow.
- Reduce current tax liability.
- Defer Federal Income Taxes.
- Ability to recapture under-reported depreciation from past years.
Beyond the benefits of enhanced cash flow, a quality cost segregation analysis can be a key component in keeping you compliant with IRS regulations. In addition to breaking out all short-term depreciable items, O’Connor is a cost segregation company that routinely provides a breakout of all existing Units of Property per the 2014 IRS Tangible Property Regulations.
Assets are reviewed and selected improvements (Tangible Personal Property and/or Land Improvements) are depreciated over 5, 7 or 15 years, rather than 39 years for commercial property or 27.5 years for apartments. The identified short items are depreciated via either 200% declining balance (5 & 7 year assets) or 150% declining balance (15 year assets) thereby further enhancing your depreciation.
How Our Cost Segregation Experts Work with Your CPA
Once the decision to proceed has been made, O’Connor team members will work closely with you and/or your CPA or financial/tax manager to collect existing data and documents regarding the subject property. To prepare your report, an appraiser inspects the property, identifying eligible items, then calculates their value and distributes each to its correct depreciation life, according to IRS rules and Federal Tax Courts decisions.
Next, we issue a final report, providing detailed cost allocations for the individual 5, 7 and/or 15-year classifications, along with the 39 or 27.5 year classifications. The latter are broken out into the nine “units of property” called out in the 2014 IRS Tangible Property Regulations.
Tax savings delivered for our clients
First we seek to understand the client’s needs and magnitude of tax pain and review properties available for cost segregation.
O’Connor & Associates works closely with you and/or your CPA or financial/tax manager to collect existing data and documents regarding the subject property.
An appraiser inspects the property to identify eligible items, then calculates their value and allocates each to its correct depreciation life, per IRS rules and Federal Tax Courts decisions.
Expert Cost Segregation Company
O’Connor’s cost segregation division focuses only on cost segregation studies for its commercial clients. Our trained Cost Segregation Specialists perform cost segregation studies servicing all 50 states as well as international clients. We’ve completed thousands of reports generating hundreds of millions of dollars in federal tax savings for our clients. Our team of cost segregation specialists is made up of experienced, trustworthy professionals providing:
- Outstanding Customer Service
- Quality Technical Work
- Undivided Cost Segregation Focus
O’Connor Cost Segregation team members typically utilize an engineering-based approach to our studies which is the IRS preferred methodology. Our team will interface with you to answer all of your questions about cost segregation and will assist you in determining if a cost segregation study will be of benefit to you. One of the key components in this process is a preliminary estimate of potential benefits.
Your O’Connor team will provide, at no charge and with no obligation, a preliminary analysis that will estimate approximate savings for your asset based on studies previously completed on similar assets.
These results will include a firm cost quote, allowing you to project a payback ratio of savings versus study cost prior to making any commitment to continue.
Why O’Connor Cost Segregation?
We are cost segregation specialists! Our studies are IRS tested, CPA approved, and warrantied for the duration of your ownership of the asset studied! Satisfaction is guaranteed; if you are not satisfied, you do not pay.
Our studies are a key component in keeping you IRS compliant! O’Connor cost segregation studies not only detail all short-life components, but also provide a breakout of all Units of Property (UoP) as required in the recent IRS Tangible Property Regulations.
We can help you on assets you have owned for years! “Catch-Up” (C-U) studies allow you to claim previously under-reported depreciation from prior years without filing any amended tax returns!
IRS Approved and Compliant! Cost Segregation is a conservative, defendable, IRS-defined depreciation approach that will reduce your federal income taxes! Our warranty of the study is included in our flat fee study. Should IRS questions arise, we will defend our studies at no additional charge to you!
Accountant Friendly. We partner with your CPA or Tax Professional! Our advisors and appraisers interact with your accountant throughout the entire study process.
O’Connor is experienced and Professional! Our technical experts are state-licensed appraisers who have performed cost segregation studies on thousands of commercial assets nationwide.
Serving All 50 States with Cost Segregation Solutions
Property Types That Benefit From Cost Segregation Studies
Free Preliminary Analysis
Apartment Building Cost Segregation
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Hotels, Motels, Hospitality
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Office Buildings
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Medical / Dental Buildings
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Shopping Centers
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Retail
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Assisted Living / Nursing Homes
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Manufacturing
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Warehouse / Distribution
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Storage
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Restaurants
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Auto Dealerships / Service Centers
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Bank / Financial
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Private School / Day Care
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REITs
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Green Buildings
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