January 17, 2017
Here’s a quote from the recently released IRS Audit Techniques Guide on the Capitalization of Tangible Property:
COST SEGREGATION STUDIES
Taxpayers have used cost segregation studies to determine what constitutes § 1245 (personal) or § 1250 (real) property for many years. Historically, these cost segregation studies have resulted in advantageous depreciation deductions for taxpayers. With the issuance of the final regulations, the demand for cost segregation studies is on the rise.
In many cases, taxpayers who previously decided not to conduct cost segregation studies for depreciation purposes are hiring specialists with engineering expertise to determine units of property for purposes of applying the improvement rules. Even taxpayers that conducted these studies in the past are once again hiring specialty firms, or CPAs, to take another look at their units of property and associated costs.
Cost segregation studies now serve additional purposes. For example, not only do these studies reclassify a building’s components into assets with shorter class lives, but they also identify building systems for purposes of applying the improvement rules. These studies are also used to identify functionally interdependent plant property and to determine individual components or groups of components that perform a discrete and critical function.
We at Harbor Tax Group hold our studies to the highest quality standards of the American Society of Cost Segregation Professionals.