General Contractors and Cost Segregation Studies

Bigelow, Ben F.; Robinson, J M

doi:10.1061/9780784479827.038

Cited by 1 publication

(11 citation statements)

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“…It enables the acceleration of depreciation deductions by classifying various building components and property as becoming depreciated over shorter periods, such as 5, 7, or 15 years, as opposed to the standard 27.5 or 39 years [4,5]. This approach offers several advantages over straight-line depreciation, including (i) an immediate increase in cash flow through accelerated depreciation deductions; (ii) an opportunity to claim 'catch up' depreciation on previously misclassified assets; (iii) provision of an independent third-party analysis that withstands IRS review [5][6][7].…”

Section: Introductionmentioning

confidence: 99%

“…For instance, a $10 million office building subject to straight-line depreciation would result in approximately $256,400 in annual depreciation. However, using accelerated depreciation through cost segregation, the deduction in the first year of ownership would be around $382,900, representing a nearly 50% increase in cash flow for the building owner [5][6][7]. The timing for conducting a cost segregation study can vary based on individual client circumstances [8].…”

Section: Introductionmentioning

confidence: 99%

“…The timing for conducting a cost segregation study can vary based on individual client circumstances [8]. For investors engaged in planning construction or remodeling, the ideal time for considering a cost segregation study is before the building's infrastructure is established [5,6]. Pre-construction consulting allows accurate tracking of items eligible for accelerated depreciation, resulting in time and cost savings [3].…”

Section: Introductionmentioning

confidence: 99%

“…The advent of modern tools and processes in the field of construction and management of buildings and real estate properties is revolutionizing the industry. Performing a cost segregation study requires a comprehensive understanding of IRS guidelines and case law and expertise in engineering, construction, and tax matters [6]. Compliance with the IRS Audit Techniques Guide and familiarity with prior court cases and rulings pertaining to individual assets are also crucial [4].…”

Section: Introductionmentioning

confidence: 99%

“…Cost segregation reports are offered at a fee, which varies depending on the type and size of the building [6]. The researchers conducted a case study and determined that the value of cost segregation services is generally estimated to be $10,000 or higher, offering a prompt return on investment [5].…”

Section: Introductionmentioning

confidence: 99%

See 4 more Smart Citations

Development of a BIM-Enabled Automated Cost Segregation System

Zhang

Kumar

et al. 2023

Buildings

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The cost segregation study is a tax planning strategy employed to optimize cash flow by redefining real estate assets as personal property and land improvement, enabling accelerated tax depreciation. However, conventional cost segregation practices suffer from limitations, such as time-consuming procedures and high associated costs, which hinder their effectiveness. To overcome these challenges, this paper presents an innovative strategy that integrates Building Information Modelling (BIM) to develop an automated cost segregation system. The research aims to optimize the workflow by developing a BIM model and using 5D BIM to perform a cost segregation study by categorizing building elements under a Modified Accelerated Cost Recovery System (MACRS). This workflow aims at minimizing the time and financial resources expended with traditional methodologies. The proposed workflow enables precise identification and separate depreciation of building components, resulting in significant tax deductions that would otherwise be unattainable. The results indicate that performing cost segregation with BIM leads to a significant increase in depreciation amounts, particularly during the initial six years, while also raising the net present value of depreciation by 45%. The integration of BIM technology facilitates effective management and sharing of cost segregation data among stakeholders, enhancing collaboration and decision-making throughout the project lifecycle. Owners can optimize cost management and financial planning, identifying tax-saving opportunities and improving cash flow. General Contractors (GCs) can leverage the system during the bidding process, enhancing their competitiveness and project acquisition potential. Future research can explore the integration of cost segregation modules from BIM with asset management tools, enabling improved facility and fiscal management of building components. Such integration holds promise for enhancing the construction and real estate industry’s overall efficiency and performance.

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Section: Introductionmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%