Conduct of Cost Segregation Studies

Through conduct of a Cost Segregation Study (CSS), property assets are identified and reclassified to shorten the depreciation time for more tax-favorable asset classes. The benefits of CSS are best measured in Net Present Value wherein “brick and mortar” assets are converted to “personal property” assets to improve the property’s cash flows.

Some of the most common commercial property assets that can be classified as “personal property” include:

  • Cabinets and millwork
  • Molding
  • Flooring/Carpets
  • Wall coverings
  • Accent lighting
  • Security Systems
  • Exterior shutters
  • Window treatments
  • Ceiling fans
  • Folding partition
  • Emergency generators

In addition, newly constructed properties make the best candidate for CSS mainly because their components and materials are already listed and ready for analysis. Likewise, conducting CSS is also recommended for newly acquired existing buildings as long as their value hasn’t crucially depreciated yet.

In general, the following are the indications of commercial properties that should undergo CSS.

  • The asset has a depreciable cost basis of $1 million or more.
  • The building is under acquisition and renovation process.
  • The building is still under construction.
  • The existing property is being renovated or extended.

Potential properties that can experience the most financial benefits through CSS include:

  • Office buildings
  • Shopping centers and complexes
  • Restaurants and food shops
  • Hotels and resorts
  • Warehouses and distribution facilities
  • Factories and industrial plants
  • Medical facilities such as hospitals and clinics