There is an excellent article in the Tax Adviser that is beneficial for all commercial property owners that acquire, construct or improve their properties. [link to article: http://www.aicpa.org/publications/taxadviser/2012/september/pages/clinic-story-03.aspx]
It addresses temporary new regulations that came into effect as of January 1, 2012. The article points out that Cost Segregation Studies are in a transition stage, having taken on a whole new level of importance with additional benefits available to property owners through assets that have been “retired”. Clearly, there are additional uses for Cost Segregation Study techniques. A Cost Segregation Study enhanced with additional information regarding the building structure and systems, will assist the taxpayer in evaluating whether future expenditures are deductable repairs and maintenance or capital improvements.
The second, very important component of the new temporary regulations concerns building component dispositions and how Cost Segregation Studies are utilized to segregate the various elements of a structure. For example, when a roof is replaced under the previous regulations the old roof could not be written off and had to remain on the books at 39 years. Now, through an engineering based Cost Segregation Study, the remaining depreciable basis of the asset can be written off immediately upon replacement. These regulations are very specific. Knowing the specific cost of an item and the specific category spelled out in the regulations is a must. The only way that this can be done reliably is through an engineering based Cost Segregation Study. This is a new use of Cost Segregation Techniques and it is very clearly explained in the Tax Adviser article.
David J. Brown, CPA is the owner of KGR Brown and Associates P.C., a certified public accounting firm, whose concentration for the last 20 years has been in corporate, partnership and non-profit taxation. David is a member of the American Institute of Certified Public Accountants and the Illinois CPA Society. The firm has significant experience with cost segregation study principles and techniques.