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Cost Segregation Year-One Payback Ratios

(Year-One Payback Ratios of 10:1 to 100:1 are not unusual when cost segregation is supplemented by bonus depreciation)

Cost Segregation payback ratios are impacted by a variety of factors. Our free preliminary analysis takes the risk out of the process:

  1. we estimate savings before you engage us and
  2. if the cost segregation results are materially less than estimated in the preliminary analysis, we will waive the fee or refund you money.

Three factors affect the year one payment ratio:

  1. Your marginal tax rate
  2. The amount of taxable income you can offset, and
  3. Whether you can use bonus depreciation (Tax Cuts and Jobs Act of 2017)

This seems like a wild claim, but many if not most of our clients using bonus depreciation and cost segregation are achieving a year-one billing to cost ratio of 10:1 or higher. Many with large properties (over $10 MM) achieve year one billing to cost ratios of 100:1.

If it “Looks Too Good to be True”

The amazing part of cost segregation is the IRS prefers it, when done in a credible manner that generates a credible result. Consider the IRS comment from their Audit Techniques Guide:

“to calculate depreciation for Federal income tax purposes, taxpayers must use the correct method and proper recovery period for each asset…”

The only means to determine the proper recovery period for each asset is to do a cost segregation study. (The exception is new buildings where actual costs are available.)

Conclusion

Cost segregation, which generates year-one payback ratios typically in excess of 10:1:

  1. Is the preferred method of calculating depreciation
  2. While using the IRS’ preferred method, you receive huge tax benefits because of the extra depreciation.