The nature of the industry gives manufacturers a particular opportunity with cost segregation studies. A great deal of what goes into construction or renovation of manufacturing facilities is vital to supporting your business, and therefore may qualify to be depreciated over a shorter time period.
But too many manufacturers are under the mistaken impression that a cost segregation study must be performed in the year of purchase or construction, and therefore don’t pursue this profit booster.
In reality, owners of manufacturing facilities are welcome to perform cost segregation studies on buildings purchased, built or improved in prior years. That’s because current IRS rules allow you to “catch up” the additional depreciation in the current tax year, and there’s no need to amend tax returns. In fact, you could see significant current-year tax benefits from real estate transactions that took place up to 15 years ago.
Ideal cost segregation candidates
No matter your company’s entity structure, if your manufacturing business owns real estate and pays taxes, you’re a potential candidate for cost segregation. This includes, but is not limited to:
- C Corp
- S Corp
Manufacturers can see tax savings from:
- Existing buildings that are being depreciated over 39 years
- Existing buildings currently being updated, expanded or restored
- Newly constructed buildings, or those under construction
- Renovations undertaken for a leased building
Further resources for understanding cost segregation: