A cost segregation study is a process of identifying the essential components of a building or remodeling project in order to accelerate the depreciation expense taken against your taxable income. As an independent member of the BDO Seidman Alliance, our cost segregation studies are performed by professional engineers with design/construction experience who work hand-in-hand with BDO Seidman, LLP’s tax partners. The cost segregation study is completed in order to maximize the federal tax depreciation to be claimed on your facilities whether they are newly constructed or acquired. You also have the opportunity to perform these analyses on facilities placed in service in prior years without the need to amend past tax returns.

The primary goal of these studies is to identify all property that qualifies for shorter federal tax depreciation lives (5-, 7-, or 15-year life as opposed to the 39 years required for buildings). The direct benefit from the analysis is increased depreciation in the early years of the ownership of the facility resulting in increased tax savings and more available cash for other uses.

The engineers from BDO Seidman, LLP are willing to provide you with a proposal for performing this analysis after reviewing some very basic information concerning your facility. Their proposal will identify the estimated tax savings to be realized the first year, the net present value of the tax savings over the remaining tax life of the facility and the professional fees associated with performing the analysis. Our fees are not contingency based, but rather based on the hours required to do their work. Additionally, BDO Seidman, LLP provides a benefit-to-cost ratio in the proposal which will provide a multiple of our fee in tax savings the very first year. The proposal is provided to you at no cost so there is no real risk in determining the magnitude of the tax savings that would be realized as a result of their analysis. With a significant return on your investment provided the very first year it appears to us to be an easy decision to request the proposal.

The positions taken by BDO Seidman, LLP’s engineers with regard to property classifications are well documented and supported in the report provided as part of the study. Our studies have consistently withstood IRS scrutiny with an aggressive but defendable approach to asset classification. We have provided the following example to show you the significant savings available through the proper classification of building assets as 5-, 7-, or 15-year property as opposed to leaving the property classified as part of the building (39-year life with straight-line depreciation required). The following table shows the benefit to be gained from the proper classification of only $100,000 in assets as 5-, 7-, or 15-year property.