Investigating cost segregation of your depreciable assets may serve your surgery center well. This ASC tax strategy could allow you to reduce your tax burden and improve your cash flow by shortening your depreciable tax life with acceleration methods.
How it works
Typically, nonresidential real property assets are given a tax life of 39 years.1 A qualified asset management team can investigate and re-engineer those depreciable assets to three, five, seven or even a fifteen year tax life – all of which are allowable under the IRS tax code. The good news is that this process is not confined to new property or assets. As long as the assets have not been fully depreciated, there still may be value to cost segregation.
Basic principle
The basic principle is based on today’s dollar which is assumed to have more value than the future dollar. Accelerating depreciation increases your tax deduction today – an approach that allows you to take advantage of the better dollar value.
Who does it?
Seek out the services of a cost segregation team and ask them to develop a proposal for your ASC. According to the IRS, “The preparation of cost segregation studies requires knowledge of both the construction process and the tax law involving property classifications for depreciation purposes. A preparer’s credentials and level of expertise may have a bearing on the overall accuracy and quality of a study. In general, a study by a construction engineer is more reliable than one conducted by someone with no engineering or construction background. However, the possession of specific construction knowledge is not the only criterion. Experience in cost estimating and allocation, as well as knowledge of the applicable law, are other important criteria. A quality study identifies the preparer and always references his/her credentials, experience and expertise in the cost segregation area.”2
Many of the larger accounting firms and standalone consulting firms have cost segregation teams that are qualified to complete your re-engineering cost analysis.
Cost
The fees associated with a cost segregation study can be expensive. Reputable firms will prepare a cost versus return on investment (ROI) analysis for you to review before you commit. With the political environment subject to change, it may be worth investigating this strategy sooner rather than later.
Conclusion
If your ASC is interested in improving its cash flow through reduction of federal and state income taxes, it may behoove you to investigate cost segregation as a potential strategy.
Rick DeHart – Principal Partner
1 https://www.irs.gov/publications/p946/ch04.html
2 https://www.irs.gov/businesses/cost-segregation-audit-technique-guide-chapter-4-principal-elements-of-a-quality-cost-segregation-study-and-report
