Example of Cost Segregation on an Office Building

[Julio Gonzalez]

Let’s say you purchase an office building for $14,000,000 and the value of the land that the building is on is $2,000,000. You have $12,000,000 in depreciable assets. Without a cost segregation study, you would depreciate the $12M over a 39 year period, $307,692 per year.

Within this office building, you have assets such as paved parking, specialty electrical, finishes, carpeting, landscaping, sidewalks, office furniture, electrical systems, plumbing systems, etc. You decide to have a cost segregation study performed and based on the study, your assets are split up between the following categories: Tangible Personal Property, 5-Year Useful Life, 15-Year Useful Life and 39-Year Useful Life. 5% of your assets were reclassified to Tangible Personal Property (to be fully expensed in year one), 10% of your assets were reclassified to a 5-Year Useful Life, 15% of your assets were reclassified to a 15-Year Useful Life and 70% was determined to stay with a 39-Year Useful Life.

This means that based on the cost segregation study, your first year depreciation is $1,175,385 compared to $307,692 without cost segregation. Cost segregation helps increase your cash flow by accelerating the depreciation of your office building.

Have you had a cost segregation study performed on your property?