How to Utilize the Depreciation Incentives: Cost Segregation Studies

A Cost Segregation Study (CSS) may allow you to utilize current and former depreciation incentives. A CSS is an analysis of all building construction and improvement costs that properly classifies costs into the correct recovery periods for depreciation purposes. Rather than depreciating the entire cost of a building over 39 or 27.5 years, portions can be depreciated over 5, 7 and 15 years with an engineering-based CSS. These reclassified costs can help taxpayers to take advantage of the following:

Current Incentives

Construction of a new facility might entitle you to utilize the recent depreciation incentives, which include the following:

  • Section 179 (expensing of capital assets) increased to $500,000 for the tax years 2010 and 2011. The phase-out is dollar for dollar, starting at $2,000,000.
  • 100% bonus depreciation for qualified investments made after September 8, 2010 and before January 1, 2012.
  • 50% bonus depreciation for assets placed into service after December 31, 2007 and before January 1, 2013.

Former Incentives

A CSS performed on real estate acquired or constructed in previous years can identify those costs that might be eligible for shorter class lives and therefore result in the utilization of the former bonus depreciation incentives. This adjustment to correct depreciation allowed versus the depreciation taken on a prior-year tax return can be deducted on your current-year tax return. Keep in mind the following incentives and dates:

  • 30% bonus depreciation from September 11, 2001 to May 5, 2003
  • 50% bonus depreciation from May 6, 2003 to December 31, 2004

For more information on cost segregation studies, please contact Steven A. Barber.

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Schneider Downs provides accountingtax, wealth management, technology and business advisory services through innovative thought leaders who deliver the expertise to meet the individual needs of each client. Our offices are located in Pittsburgh, PA and Columbus, OH. 

This advice is not intended or written to be used for, and it cannot be used for, the purpose of avoiding any federal tax penalties that may be imposed, or for promoting, marketing or recommending to another person, any tax-related matter.

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