Home Sweet Home: Cost Segregation Analysis

Madison SPECS worked with a housing developer right from the start of construction and brought home the tax benefits of a Cost Segregation analysis.

THE SITUATION: COST SEGREGATION SERVICE

A developer asked Madison SPECS to help him make the most of the tax credits available on an affordable housing project he was about to undertake. The developer's concept was to create a large garden-style apartment complex covering several acres that would incorporate amenities to make the project appealing to prospective tenants.

THE CHALLENGE:

The primary challenge in this assignment was to make the affordable housing project as appealing as possible to prospective tenants while keeping building costs down by maximizing tax credits and other tax advantages available to the builder.

THE SOLUTION:

By bringing Madison SPECS into the project at the planning stage, the developer received expert advice regarding the tax benefits available through accelerated depreciation for various amenities, as well as the potential tax benefits of certain construction options-an approach that proved to be highly effective.

In the concept development stage, Madison SPECS identified basic items and potential amenities that would qualify for accelerated depreciation, including:

• Playgrounds
• Tennis courts
• Pool
• Landscaping
• Signage
• Carpeting
• Enhanced interior and exterior lighting
• Appliance
• Solar heating units

Then as change orders came in, Madison SPECS investigated the cost and tax ramifications of each and recommended upgrades, such as using gunnite rather than cement for the pool and decorative sconces rather than simple florescent fixtures for the hall lighting.

Madison SPECS was also able to take items such as architect and engineer fees, General Conditions, and Overhead and Profit and allocate them ratably across all the asset classes, resulting in larger depreciations for the short-life assets.

THE RESULTS FROM COST SEGREGATION SERVICE:

The developer's estimated net present value tax benefit was close to $1 million.

Madison SPECS' expertise helped build a home sweet home for both a developer and his tenants.