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Cost Segregation Studies: A Tax-Saving Tool All Practitioners Should Be Ready to Offer  

Author:  Nicholas C. Lynch, Ph.D..; Charles R. Pryor, Ph.D..

Source: Volume 27, Number 04, Summer 2010 , pp.27-44(18)

Journal of Taxation of Investments

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During periods of recession, when credit may be unavailable for making needed working capital improvements, companies constantly look for alternative means to increase their operating cash flow. A cost segregation study (CSS) is a valuable tool that can enable a qualifying taxpayer to realize significant increases in cash flow and tax savings over multiple periods. Any taxpayer in possession of residential or non-residential depreciable property that was purchased, constructed, inherited, or improved after 1986 may qualify for a CSS. This article provides a detailed analysis of a cost segregation study, including discussions of which types of taxpayers qualify for a CSS and which costs may be classified as Section 1245 property versus Section 1250 property, an explanation of how a CSS should be performed, and a detailed analysis of the many tax advantages that a CSS offers. It also includes an in-depth discussion of the technical layout of the various methods of conducting a CSS as well as the many ways to increase a study’s overall return.


Affiliations:  1: Georgia Southern University; 2: Western Illinois University.

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