How an Engineering Based Cost Segregation Study can Increase Cash Flow for a Restaurant/Bar (Lookback)

Cost Segregation Studies can provide many great benefits for property owners as well as tenants who have made improvements to their property. An engineering based Cost Segregation Study increases a property owner’s cash flow by accelerating the depreciation of assets and writing off qualified retired assets. A CPA can help, to some extent, by utilizing their understanding of tax laws and codes. However, by hiring an engineering based Cost Segregation specialist and having it reviewed by an accountant, it will guarantee that you are maximizing the benefits available to you. Engineers have unique skills that an accountant just does not have which will optimize the benefits available to a property owner.

We frequently hear from clients that their accountants have already performed a Cost Segregation Study, so they have no need to complete an engineering based study. We have a vast library of case studies which illustrates how we can find “hidden” assets that may have been overlooked without the input of engineers. This blog will highlight the difference between an engineering based study and a CPA who believes they have been “aggressive” with accelerating the depreciation of their client’s assets.

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Who, What, When and Why Cost Segregation?

 

An engineering based Cost Segregation Study identifies and reclassifies personal property assets from a standard depreciation period of 39 years to a shorter life class such as 5, 7 or 15 years. The purpose of this reclassification is to reduce a property owner’s tax liability and therefore increase their cash flow.  We use an engineering based approach to perform a Cost Segregation study. New construction, tenant improvements, existing buildings owned for a period of time and current year acquisitions are all types of property that can take advantage of the benefits of a Cost Segregation study.

The IRS explicitly states that “…Cost Segregation Studies should be performed by qualified individuals or firms such as those employing personnel competent in design, construction, auditing, and estimating procedures relating to building construction.” (PLR 9741002)

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