Keep more of what you earn THE BENEFITS OF COST SEGREGRATION PREPARED BY: Brian Gilboy June 14, 2016

AGENDA Background on cost segregation Who can benefit from a study How studies are performed Assets types/examples Case Study Questions June 14, 2016 – Benefits of Cost Segregation

BACKGROUND Tax strategy utilized by commercial property owners Accelerates traditional 39 year property to shorter lives Reclassifying assets from real property to personal property Increases cash flow through tax deferment 1997 HCA v. Internal Revenue Service In 2005 IRS publishes Audit Technique Guidelines Accepted tax strategy supported by over 300 cases June 14, 2016 – Benefits of Cost Segregation

THE BENEFITS Owners/ investors of commercial property Reduce tax liability-increase cash flow Buildings placed in service since 1987 “Catch up” on missed depreciation without amending 50% Bonus depreciation for new construction Support for writing off disposed assets June 14, 2016 – Benefits of Cost Segregation

THE BENEFITS Typical candidates for a study? All commercial buildings ($500,000+) New construction Purchase of existing building Step up in basis Inheritance/change of ownership Major renovation June 14, 2016 – Benefits of Cost Segregation

It is common to reclassify 20%-40% of the building’s cost from 39 years to shorter useful lives.

METHODOLOGY Different methods of cost segregation Detailed engineering approach Residual/estimate Rule of thumb Site visit scheduled, plans reviewed, reconstructed Separate building assets and business related assets Allocate costs using actual costs or IRS database Important to also capture 39 year property June 14, 2016 – Benefits of Cost Segregation

SAMPLE PAGE June 14, 2016 – Benefits of Cost Segregation

ELECTRICAL 39 Year Property 5/7 Year Property June 14, 2016 – Benefits of Cost Segregation

PLUMBING 5/7 Year Property 39 Year Property June 14, 2016 – Benefits of Cost Segregation

MECHANICAL/ HVAC 39 Year Property 5/7 Year Property June 14, 2016 – Benefits of Cost Segregation

SITE IMPROVEMENTS 15 Year Property June 14, 2016 – Benefits of Cost Segregation

INTERIORS Light fixtures Carpeting Wall covering Specialty flooring Decorative millwork Molding Partition walls Shelving Cabinetry Branch wiring June 14, 2016 – Benefits of Cost Segregation

CASE STUDY New construction of $5.2M manufacturing facility Placed in service in December of 2015 Conducted a detailed engineering study Took advantage of bonus depreciation Reclassified 33% of the construction costs to 5/7/15 June 14, 2016 – Benefits of Cost Segregation

CASE STUDY Client will accelerate an additional $1.4M v. traditional 39 year classification in the next 5 years June 14, 2016 – Benefits of Cost Segregation

SUMMARY New & existing commercial properties and major renovations Catch up on missed depreciation to current year without amending returns Recommend a detailed engineering approach Offer free assessments to determine benefits Contact your CDH trusted advisor June 14, 2016 – Benefits of Cost Segregation

Thank you brian@bearingstrategies.com 847-550-7101 THE BENEFITS OF COST SEGREGRATION