Cost Segregation Provides Opportunities for Significant Tax Savings
The case of Hospital Corp. of America v. Commissioner of Revenue established the right of taxpayers to utilize cost segregation studies for computing depreciation and provides guidance in identifying tangible personal property in a building, which is eligible for accelerated methods of depreciation over fewer years as compared to the traditional 27.5 year recovery period for residential rental property and the 39.5 year recovery period for commercial real estate.The result of cost segregation analysis is significant savings to the taxpayer, and an incentive for investment, particularly when the taxpayer has the ability to elect the provisions of code section 179, which allows expensing (to a limit) of certain depreciable items all in one year.
The determination of whether an item is personal property or real property (ie: a structural component), as usual, depends upon the facts and circumstances, however, the IRS position is that the following items, if used in the operation and maintenance of a building are examples of structural components (ie: real property): bathtubs, boilers, ceilings, central air conditioning and heating systems, chimneys, doors, electrical and wiring, fire escapes, floors, hot water heaters, HVAC units, lighting fixtures, paneling, partitions – if not readily removable, plumbing, roofs, sinks, sprinkler systems, stairs, tiling, walls, and windows (Reg. Section 1.48-1(e)(2))