Consider a commercial property that was purchased by a corporation for $20 million dollars on January 1, 2018. The corporation paid $10,000 to a qualified construction engineer for a cost segregation study. The construction engineer determined the following components made up the total value of the commercial property:
Personal property (15%): $3,000,000
Land improvements (15%): $3,000,000
Building (60%): $12,000,000
Land (10%): $2,000,000
Using this study, the corporation could depreciate $6,000,000 in 2018 from the property if they elect the bonus depreciation option. The building’s actual value would depreciate normally over 39 years. The residual land value would not be entitled to depreciation. Corporate income tax rates were set at a flat 21% for 2018. Therefore, the total tax savings under this method would be $1,260,000.If the corporation did not have a cost segregation study performed, they would only be able to deduct normal depreciation from the property for 2018 – $512,821 ($20,000,000 / 39 years). Their tax savings from the building’s purchase would be $107,692 – much less than if the corporation had invested in the cost of the segregation study.