Dr. H.N. Corbett, DDS, has practiced dentistry for approximately 16 years in the Lewisville, Texas area, but recently moved her practice to The Colony, Texas. Dr. Corbett’s new location is a leasehold property where a complete build-out was required. The project was completed in 2011 and in early 2012 Dr. Corbett learned about cost segregation. After Dr. Corbett investigated the benefits of cost segregation she engaged a cost segregation study to be performed.
The objective of a cost segregation study is to identify assets that could be moved to shorter recovery periods in order to accelerate depreciation and defer taxes. The IRS identifies a 5-year recovery period for tangible personal property. Tangible personal property is considered IRC Sec. 1245 assets. The depreciation method is called Modified Accelerated Cost Recovery System or MACRS. This innovative leasehold space was built-out by Med-Tech Construction and placed into service in June 2011 with a total depreciable cost basis of $199,283. The leasehold space consists of approximately 1,200 square feet of dental procedure, recovery, and office space. Med-Tech Construction is a privately owned and operated general contractor which specializes in design, construction and renovation of Dental facilities and understands the benefits of applying cost segregation to their designs and build-out.
Cost segregation engineers examined all design and construction documents, contractor payment applications and other related data to determine the cost basis for every component in the build-out. Next, a cost segregation architect conducted an on-site inspection to identify and photograph all assets eligible for accelerated depreciation. The cost segregation team (onsite architect, senior engineer, and tax specialist) analyzed the cost data and construction drawings to maximize the amount of accelerated depreciation. Finally, the cost segregation team reviewed the preliminary cost segregation study and certified it’s comprehensiveness as well as it’s accuracy before submitting it to Dr. Corbett and her CPA for review.
The pre-engagement estimate provided to Dr. Corbett showed a potential reallocation of $25,200, or 18%, to shorter recovery periods. The projected tax benefit was $8,474 in first year savings with $10,333 in current-year Net Present Value @ 5%. The actual cost segregation study resulted in a total of $123,602, or 62%, being rescheduled to 5-year property. As a result, Dr. Corbett will save $23,577 in first year tax payments and realize over $13,589 in current-year Net Present Value.
Dr. Corbett shared, “My one regret is that I did not get this cost segregation study done at the planning stage, before building, but still, it is better to be late than to have never done the study at all!”
Cost segregation delivers results every time it is applied.
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