Example of the Income Tax Benefit from a Retrospective Cost Segregation Study of a Previously Purchased or Constructed Property

Before Cost Segregation Hotel is constructed in the 1990's General contractor cost is $4.5 million No cost segregation: 100% of $4.5 million classified as 39 year property for income tax depreciation purposes (2.5% per year straight-line depreciation) Total tax depreciation $1,125,000

After Cost Segregation Cost seg done in 2004 identifies $800,000 of 5-year tangible personal property and $300,000 of 15-year site improvements that were included in general contract but misclassified as 39 year property Total tax depreciation (after cost seg) is $1,867,000 Difference in before and after depreciation is $742,000 x 35% marginal rate = TAX SAVINGS of $260,000 that is allowed on 2004 tax return In this example, our client's tax savings equals 29 times the expense of the cost segregation study.