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"A good site visit can make a tremendous difference in a cost segregation study. It helps me identify assets that might not be clear if I just studied the site survey and blueprints back in the office."

MARIO BERTINELLI
Engineer -Madison SPECS

A Comfortable Hotel Experience

Madison SPECS’s cost segregation team recently performed a comprehensive engineering and tax assesment on a resort hotel, providing a substantial income tax benefit.

THE SITUATION:

Madison SPECS was called in to perform a Cost Segregation study for a seven-story, 328-room hotel located in New York’s Catskills region.  Comprising 270,000 square feet, the full-service hotel included a ballroom, dining and catering facilities, a breakfast room, indoor pool and exercise facility. It was constructed with a steel frame structure, stucco exterior walls, multiple passenger elevators, and standard interior finishes and fixtures.

THE PROCESS:

Headed up by engineer Thomas Varney, Madison’s team conducted a comprehensive site tour of the hotel’s interior and exterior.  He compiled a full inventory of the facility’s furniture, fixtures and equipment, analyzed the buildings blueprints and architectural plans, examined a sampling of the hotel rooms as well as the various common areas and facilities, and took representative photographs. With nearly ten years of experience performing cost segregation studies for hotels and motels, Mr. Varney was able to quickly pinpoint numerous assets eligible for accelerated depreciation. “Many hotel owners are unaware of the considerable savings they can gain from cost seg studies,” advised Mr. Varney. “But these savings translate into improved cash flow—it’s more money in their pockets today.”
Madison’s expert cost and accounting specialists then valued the hotel’s assets eligible to be reclassified and allocated them into the appropriate 5-, 15- and 39-year “buckets,” or tax categories, in accordance with current tax laws. Madison SPECS presented the client with a comprehensive report including a detailed break-out of the assets, detailed depreciation schedules for the client’s CPA, tax justifications, site photographs and other supporting documentation as outlined in the IRS Audit Techniques Guide.

THE RESULTS:

  • $1.1 million of fixed assets was reclassified to a 5-year tax depreciation schedule
  • $500,000 was reclassified to a 15-year schedule
  • Of the hotel’s total building cost of $5.4 million, Madison SPECS was able to successfully reclassify a total of $1.6 million to shorter tax depreciation schedules, resulting in 30% of the assets being reclassified to shorter asset lives. Net present value income tax benefit of $318,547.
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