News | Construction Audit & Advisory Services

Cost Segregation: Increase Cash Flow and Maximize Investment Potential

May 30, 2023

Engineers Specializing in the Niche Service Offering of Cost Segregation

At the center of HPM lies a clear and simple mission: acting in the best interest of the owners we represent at all times, so that they might maximize the productivity and profitability of their entity. Underneath this broad umbrella lie numerous service offerings providing owners with practical steps to accomplish their goals. The Audit & Contract Services group within HPM are experts not only in construction but also in the world of finance and accounting. These professionals are able to save millions of dollars on behalf of their clients by applying this unique combination of skills and industry knowledge. Within the Audit & Contract Services group are engineers specializing in the crucial service offering of Cost Segregation.

Maximizing Cash Flow

Cost segregation is a powerful tool in reducing taxes and producing additional cash flow in the early years of property ownership, enabling assets that depreciate more quickly to be separated from the standard depreciation schedule for the property. Within today’s volatile market, many property owners are wishing they had known about cost segregation sooner. For those who have acquired, remodeled, or built a piece of property this year, a cost segregation study is the best way to reduce taxable income and increase your cash flow sooner by identifying components of a project that are eligible for faster tax depreciation.

Bonus Depreciation

Cost Segregation becomes all the more powerful when taking into account bonus depreciation, which is being phased out slowly over the next four years. According to the IRS, some properties qualify for bonus depreciation, which is an additional five-year depreciation and allows these property owners to deduct a specified percentage (usually 30%, 50% or 100%) in the same year the property is placed in service. Customers should take advantage of this extra benefit on top of Cost Segregation while it is still around, as it will start to see a 20% reduction beginning this year.

Choose Your Team Wisely

Due to the many complexities and nuances that accompany Cost Segregation, it is imperative that you choose a partner with an engineering background. Cost Segregation is more of an engineering function than an accounting function, and this is proving to be true as the pool of companies offering Cost Segregation services has become more saturated. The IRS is starting to weigh the validity of firms that utilize an engineering approach over those that take an accounting approach, as it takes a true engineering knowledge of building components to segregate the asset correctly. A firm may claim to abide by IRS guidelines, but it takes specialized experience to accurately understand this. Any study done without this substantial background knowledge could potentially be thrown out or leave money on the table.

Bottom line — if you are thinking about utilizing a Cost Segregation study, consider partnering with HPM and benefitting from our team’s significant experience carrying out these practices. The rewards may be even greater than you think.

Ready to discuss your next project?