Cost segregation simply classifies commercial property assets into each appropriate life-class (5-, 7-, 15-, or 39-years). If an architect takes into consideration “how” a building is designed with federal income tax consequences in mind, at least two things would occur.
The first is the project in question would become more cost effective to the owner/client. Why? Simply because the building would provide an increase in cash flow as a result of the reduction, or possible short-term elimination of, federal income taxes. Additionally, the real estate and use taxes would be reduced, as well as property insurance premiums being lowered. Furthermore, with the additional cash flow, bank financing would be more easily acquired and up to 100 basis points could be negotiated off the interest rate.
The second is the architect would have more creative freedom with the project due to the increase in “available” cash. The client will view the project architect’s “approach” to design as innovative and nuanced, at the very least, as the PA will have introduced a totally new fundamental…”cash” as a RESULT of design. Many times perception IS reality…and the fact that with the addition of certain design and/or structural changes to the project actually increasing the available §1245 personal property assets, it becomes a WIN-WIN-WIN scenario for all parties.
There are additional considerations that would positively affect both the tax consequences and the design of the project, but that’s for another topic.