By recovering costs over a shorter period of time, property owners can enjoy tax savings. A Cost Segregation Study (CSS) allocates the total building cost between real property (27.5 - 39-year life), personal property (5 -
7-year life), and land improvements (15-year life).
The example below presumes an office building purchased or newly constructed for $5,000,000, excluding land.
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Straight-line annual depreciation ($5,000,000 ÷ 39 years) before CSS
*Due
to the mid-month convention, this figure times 5 does
not equal to the 5-year total below. |
$ 128,205
|
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Depreciation deductions for the first 5 years before CSS
|
$ 635,684
|
CSS reclassifies 16% of the total cost as 5-year personal property and 8% as
15-year land improvements
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|
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Annual depreciation deduction for $1,200,000 ($5,000,000 x 24%) personal properties
and land improvements depreciated over 5 and 15 years during the first 5 years
|
$ 904,602
|
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Annual depreciation deduction for $3,800,000 ($5,000,000 x 76%) real property depreciated over 39 years during the first 5 years
|
$ 483,120
|
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Depreciation deductions for the first 5 years after CSS
|
$1,387,722
|
|
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Five years with CSS
|
$1,387,722
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Five years without CSS (39-year straight-line)
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$ 635,684
|
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Additional depreciation deduction after CSS over 5 years
|
$ 752,038
|
Tax savings (additional cash flow to your business) over 5 years assuming
a 35% Federal tax rate
|
$ 263,213
|
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