Manufacturing Cost Segregation Studies
Unlike most other property types, manufacturing facilities have most of their depreciable assets in a 15-year lifetime schedule. Short-life depreciation can be found in heavy equipment, overhead cranes, foundation pads, electrical systems, and hydraulics. Due to the nature of these assets, their depreciation value can be quite substantial.
Cost segregation studies from O’Connor inspect all aspects of a manufacturing facility and will capture both short-life and long-term depreciable assets. This ensures that the cost segregation report will follow all the rules laid out by the IRS when it comes to methods, results, and units of property.
It is typical for the cost segregation study of a manufacturing facility to see an investment return ratio of 8-1. This can be improved further with other techniques, including catch-up and bonus depreciation, possibly resulting in a ratio of 50-1 or more. The following table shows the results that a few businesses had with cost segregation from O’Connor.
Sample of Actual Study Results
| Depreciable Basis | Purchase price | Purchase Date | Year of Study | 1st Year Tax Savings | Year 1 Payback | Initial 5 Years Tax Savings | 5 Year Payback |
|---|---|---|---|---|---|---|---|
| $2,514,112 | 11/1/2013 | 2014 | $365,931 | $144,909* | 50.5:1 | $258,216 | 96.6:1 |
| $1,688,640 | 11/1/2013 | 2014 | $229,593 | $90,919* | 34.3:1 | $153,978 | 61.9:1 |
| $1,872,496 | 4/1/2015 | 2015 | $57,342 | $22,708 | 15.0:1 | $108,553 | 72.9:1 |
| $4,979,875 | 10/1/2015 | 2015 | $204,547 | $81,001 | 26.8:1 | $362,892 | 120.2:1 |
| $1,444,320 | 9/1/2015 | 2015 | $26,683 | $22,447 | 8.3:1 | $100,215 | 37.9:1 |
Results
* Results from “Catch Up” studies which allow the owner of properties purchased in previous tax years to benefit from cost segregation in the current tax year without filing amended returns.
NOTE: The above listed tax savings are based on a 39.6% tax rate for the owner.
