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Cost Segregation Services
Detailed segregation of construction costs in new construction
and renovation projects can have a significant positive impact
on a company's cash flow, improve profits and make it easier
to fulfill local property tax requirements. Appraisal Economics
has the experience, personnel and expertise to assist clients
in obtaining maximum allowable tax depreciation benefits through
detailed cost segregation studies.
Our cost segregation studies separate real property costs from personal property costs for purposes of federal, state and property taxation. The distinctions are critical because in many cases there are large tax savings to be realized by businesses based on property cost segregation. The engineering and property accounting analyses integral to Appraisal Economics' cost segregation studies are professional and supportable, helping clients fully comply with the numerous and complex tax regulations governing this area.
Potential for tax savings exists in all types of projects. In the construction of a new manufacturing facility, for example, the cost seg process can identify property items that may have been included in the general construction but that are integral to the manufacturing process and, thus, may qualify for accelerated cost recovery. Cost segregation studies are also important in related party transactions--such as sales between two operating units of the same company--that sometimes occur in the case of used property. Similarly, they can play an important role in taxable transactions, where a new depreciable basis of real and personal property is established.
The potential savings flowing from the proper classification
of assets between real and personal property in a cost segregation
study are significant. By way of general illustration, $1,000
in assets reclassified from a 39-year real property basis
to a shorter 5-year MACRS asset class life would result in
an estimated net present value (NPV) savings of $200. Potential
savings are smaller but still significant with other types
of reclassifications. Reassigning the same $1,000 to a 7-year
MACRS basis would result in NPV savings of $180; with a 15-year
MACRS category, the savings would be $100. These NPV savings
calculations assume a 40 percent combined federal and state
tax rate and an 8 percent (mid-year convention) present value
factor.
A typical Appraisal Economics cost seg study includes the following procedures:
Site inspection of the property
Interview of all appropriate site and management personnel
Collection and analysis of all relevant project costs and pertinent engineering data
Allocation of indirect project costs to direct project costs
Analysis, estimation and allocation of costs among multi-functioning assets, where appropriate
Analysis and review of applicable tax law differentiating between real property and personal property
Analysis of MACRS class lives and their respective recovery periods and assignment of appropriate class life categories to specific assets
Accurate identification and classification of personal property and non-process related land improvements
Preparation of final written report and work paper file
accessible for future support in federal, state, and local
tax proceedings
It makes no sense to "leave money on the table" in any business situation, and that has never been more true than in today's high-speed, highly competitive environment. A comprehensive, accurate and supportable cost segregation study has the potential to improve an organization's financial standing by making sure all assets are taxed and depreciated in the most favorable manner. At Appraisal Economics, we have the skill, expertise, experience and resources to provide the best in cost segregation services. We stay abreast of all changes in relevant tax law, and we adapt our own processes to reflect current conditions. All that makes Appraisal Economics the provider of choice for cost seg services.
Appraisal Economics specializes in a wide variety of valuation services. Learn more about what we have to offer, including trademark valuations that could lend additional litigation support to an attorney, or wind power valuations that can help you better understand and determine the overall value of a facility. For a comprehensive look at all of our capabilities, please feel free to contact us today.
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