TAMPA, FL--According to John Wilmoth of Wilmoth & Associates, if you have purchased or constructed a senior living facility in the last 10 years, a cost segregation analysis will probably benefi t you. 
A cost segregation analysis identifi es items and their costs
that qualify for shorter income tax depreciation periods and
accelerated depreciation methods.
that qualify for shorter income tax depreciation periods and
accelerated depreciation methods.
This acceleration of depreciation has a tax sheltering effect by
increasing near term non-cash expense (depreciation), thereby
reducing taxable income and the associated income tax liability.
increasing near term non-cash expense (depreciation), thereby
reducing taxable income and the associated income tax liability.
It does not eliminate the tax, but defers it to later years.
But considering current federal and state tax rates, the aftertax
present value of deferring the taxes can be as much as
$200,000 for each $1,000,000 of property reclassifi ed.
But considering current federal and state tax rates, the aftertax
present value of deferring the taxes can be as much as
$200,000 for each $1,000,000 of property reclassifi ed.
A cost segregation study identifi es items and their costs that are frequently included in real property accounts (27.5 or 39 year straight line depreciation).
These items should be classified as tangible personal property, other tangible property (commonly referred to as Section 1245 property) or land improvements.
The personal property and Section 1245 property qualify for
200% declining balance income tax depreciation over 5 or 7
years. The land improvements qualify for 150% declining balance
depreciation over 15 years.
200% declining balance income tax depreciation over 5 or 7
years. The land improvements qualify for 150% declining balance
depreciation over 15 years.
Most taxpayers miss the opportunity to take the maximum allowable depreciation charge because the required information
is not provided by the contractor in their billings or, in the case
of an acquisition, the buyer has no information regarding the
value of the individual components acquired.
is not provided by the contractor in their billings or, in the case
of an acquisition, the buyer has no information regarding the
value of the individual components acquired.
Normally 20% to 30% of the real property cost can be reclassifi
ed to these shorter recovery periods. If you acquired the property some time ago or there are multiple owners, you can still benefi t from a study.
ed to these shorter recovery periods. If you acquired the property some time ago or there are multiple owners, you can still benefi t from a study.
The IRS now allows you to catch-up depreciation in the current year’s return for depreciation that should have been taken in prior years.
This can create a substantial one-time depreciation (non-cash) expense and no amended returns are required. On one recent project, Wilmoth identifi ed an additional $2,200,000 of depreciation expense reducing the owner’s current year tax liability by $770,000.
An effective, supportable cost segregation analysis requires engineering and valuation skills; knowledge of
construction methods, materials, and costs; and a knowledge of income tax regulations, court cases, revenue
rulings, and procedures.
construction methods, materials, and costs; and a knowledge of income tax regulations, court cases, revenue
rulings, and procedures.
The benefi ts of a study normally range from 15 to 30 times the related fees.
WILMOTH & ASSOCIATES is a nine year old 
fi rm led by John Wilmoth, a former valuation
partner and firm-wide leader of cost segregation
services for Arthur Andersen LLP.
,clients under audit by
fi rm led by John Wilmoth, a former valuation
partner and firm-wide leader of cost segregation
services for Arthur Andersen LLP.
,clients under audit by
For more information on how a cost segregation
analysis might help you, as well as an estimate of
benefi ts and costs, please contact John Wilmoth at 940-458-2860 or johnw@wilmothassociates.com
http://www.wilmothassociates.com/
analysis might help you, as well as an estimate of
benefi ts and costs, please contact John Wilmoth at 940-458-2860 or johnw@wilmothassociates.com
http://www.wilmothassociates.com/
CLW HEALTH CARE SERVICES GROUP represents sellers of Senior Housing properties across the United States on an exclusive basis. CLW has nearly five decades of combined real estate experience and over $1.2 billion dollars in Senior Housing sales.
To learn more about our services, please contact Allen M
cMurtry (bottom right photo) at 813.349.8349
cMurtry (bottom right photo) at 813.349.8349 
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