Question 1

Can we do this on a facility we've owned for 5 years?

Accepted Answer

Yes! Cost segregation can be applied retroactively to manufacturing facilities purchased or improved in previous years. You can capture all missed depreciation in the current tax year using Form 3115 (Change in Accounting Method) without amending prior returns. We regularly help manufacturers recover 3-5 years of missed deductions, which can result in immediate cash refunds of $200K-$500K+.

Question 2

What about expansions and renovations?

Accepted Answer

Expansions and renovations are perfect for cost segregation! Any capital improvements - new production lines, facility additions, equipment installations, HVAC upgrades, electrical system improvements - all qualify for accelerated depreciation. Even if you did cost segregation on the original facility, new capital investments should have their own studies to maximize depreciation benefits.

Question 3

Do leasehold improvements qualify?

Accepted Answer

Absolutely! If you lease your manufacturing facility but invested in improvements (production equipment installation, electrical upgrades, HVAC systems, office buildouts), those leasehold improvements qualify for accelerated depreciation. You own the improvements even if you don't own the building, and can depreciate them over shorter lives using cost segregation and Qualified Improvement Property (QIP) rules.

Question 4

Can we claim R&D credits AND cost segregation?

Accepted Answer

Yes! These are complementary strategies that work together. R&D tax credits apply to product development, process improvements, and engineering activities (typically 6-10% of qualified expenses). Cost segregation applies to capital assets and accelerates depreciation. Most manufacturers should be claiming both - R&D credits for innovation activities and cost segregation for facility and equipment investments. Combined, these can generate $500K-$2M+ in annual tax savings.

Question 5

What documentation do you need from us?

Accepted Answer

We make documentation simple. We need: (1) Purchase agreement or closing statement for the facility, (2) Equipment lists and invoices for major machinery, (3) Construction or renovation invoices and contracts, (4) Building plans or layout diagrams if available, (5) Depreciation schedules from your current tax returns. If some documents aren't available, our engineering team can work from site visits, comparable properties, and industry data to build a defensible study.

Question 6

How much does a study cost for a 100,000 sq ft facility?

Accepted Answer

Manufacturing facility studies typically range from $8,000-$25,000 depending on complexity, equipment value, and facility size. For a 100,000 sq ft facility with typical manufacturing equipment, expect $12,000-$18,000. However, the return on investment is typically 15:1 to 30:1 in the first year alone. A $15,000 study on a $5M facility commonly generates $400K-$600K in first-year tax savings, paying for itself 25-40 times over.

Question 7

Will this affect our GAAP reporting?

Accepted Answer

Cost segregation typically has minimal impact on GAAP financial statements. For tax purposes, you'll use accelerated depreciation. For book purposes (GAAP), most manufacturers continue using straight-line depreciation. This creates deferred tax liabilities on the balance sheet (a good thing - it's like an interest-free loan from the IRS). Your auditor may need our study documentation for their files. We coordinate with your accounting team to ensure smooth integration with both tax and financial reporting.

Question 8

Can we apply this to multiple facilities?

Accepted Answer

Absolutely! Multi-facility manufacturers benefit tremendously from cost segregation. We can study multiple locations simultaneously and often provide volume discounts. Each facility gets its own detailed study. This is common for manufacturers with production plants, distribution centers, and warehouses across multiple states. We've helped manufacturers with 5-20+ facilities unlock millions in cumulative tax savings. The per-facility cost decreases with volume, making the ROI even more attractive.

Question 9

How do clean rooms and specialized environments qualify?

Accepted Answer

Clean rooms and controlled environment facilities are goldmines for cost segregation. The specialized HVAC systems, air filtration, humidity control, positive pressure systems, and ISO-rated clean room infrastructure can often be reclassified to 5-15 year property instead of 39-year building depreciation. For pharmaceutical, semiconductor, and medical device manufacturers, clean room components alone can represent 20-35% of total facility value and generate $150K-$400K in first-year deductions.

Question 10

What about site improvements like loading docks and truck courts?

Accepted Answer

Site improvements are frequently overlooked but highly valuable for cost segregation. Loading docks, truck courts, rail spurs, outdoor storage yards, and material handling areas often qualify for 15-year land improvement depreciation instead of being capitalized as non-depreciable land. On large manufacturing facilities, site improvements can represent $500K-$2M in reclassifiable value, generating $75K-$300K in accelerated deductions.

Question 11

How does equipment depreciation differ from building systems?

Accepted Answer

This is a critical distinction. Production equipment (machinery, conveyors, assembly lines) always qualifies for 5-7 year depreciation. Building systems (general HVAC, structural electrical, plumbing) typically stay at 39 years UNLESS they're process-specific. Process-specific electrical (dedicated to machinery), specialized HVAC (temperature control for production), and equipment-related systems can often be reclassified to match the equipment's 5-7 year life. Our engineering analysis identifies these distinctions and can reclassify 25-40% of building systems.

Question 12

What if we're planning a facility expansion in the next 2 years?

Accepted Answer

Perfect timing! Do cost segregation on your current facility now to generate immediate cash flow, then use those tax savings to fund your expansion. When you complete the expansion, do a separate study on the new construction. This stacks the benefits - you'll have accelerated depreciation from both the existing facility and new addition. Many manufacturers use this strategy to create a self-funding cycle where tax savings finance growth.

Question 13

Do retrofits and equipment upgrades qualify?

Accepted Answer

Absolutely! Retrofitting older facilities with modern equipment, automation systems, energy-efficient machinery, or production line upgrades all qualify for cost segregation. In fact, retrofits often have HIGHER reclassification percentages (40-55%) because most of the investment goes into equipment and systems rather than building structure. A $3M retrofit commonly generates $600K-$900K in first-year deductions.

Question 14

How much can food processing facilities typically save?

Accepted Answer

Food processing facilities are particularly advantageous for cost segregation due to specialized equipment and refrigeration systems. A typical 50,000 sq ft food processing plant with $4M-$6M total basis can generate $500K-$800K in first-year deductions. Refrigerated warehouses, blast freezers, food-grade HVAC, and sanitary production systems all qualify for accelerated depreciation. Many food processors see 40-50% reclassification rates.

Question 15

What about automotive parts manufacturing facilities?

Accepted Answer

Automotive manufacturing facilities excel with cost segregation because of heavy machinery, robotic systems, and specialized production lines. A typical automotive parts facility with $8M-$12M in total investment can generate $800K-$1.5M in first-year deductions. CNC machines, stamping equipment, paint booths, assembly robots, and quality control systems all qualify for 5-7 year depreciation. Combined with R&D credits for engineering activities, automotive manufacturers often achieve $1M-$2M+ in total annual tax savings.

Question 16

Can we do this if we're in the middle of equipment financing?

Accepted Answer

Yes! Equipment financing doesn't affect cost segregation eligibility. Whether you paid cash, financed through a bank, used an equipment lease, or utilized SBA loans, you can still accelerate depreciation. In fact, the increased cash flow from accelerated depreciation can help pay down equipment loans faster. Many manufacturers use cost segregation tax savings to reduce financing costs and improve cash flow for operations.

Question 17

What happens if we sell the facility in 5 years?

Accepted Answer

If you sell, you'll face depreciation recapture on the accelerated deductions you claimed. However, the time value of money works in your favor - having cash today (from tax savings) and paying tax later (on recapture) is almost always beneficial. Plus, if you're doing a 1031 exchange into another manufacturing facility, you defer the recapture entirely. Most manufacturers find that 3-5 years of accelerated cash flow outweighs potential recapture, especially given the option to 1031 exchange.

Question 18

Do pharmaceutical manufacturing facilities have special considerations?

Accepted Answer

Pharmaceutical manufacturing facilities are among the best candidates for cost segregation. Between clean rooms (ISO 5-8 rated spaces), specialized HVAC for contamination control, validation systems, laboratory equipment, and production machinery, pharma facilities typically achieve 45-55% reclassification rates. A $10M pharmaceutical production facility commonly generates $1.2M-$2M in first-year deductions. When combined with R&D credits for drug development and process engineering, pharmaceutical manufacturers can achieve massive tax savings.

Manufacturing Facilities: Unlock $200K-$1M+ in Hidden Tax Savings

Why Manufacturing Facilities Are Ideal for Cost Segregation

Specialized equipment and systems

Heavy machinery qualifies for 5-7 year depreciation

Production lines separated from building structure

Why Manufacturing Facilities Are Equipment-Heavy Goldmines

Equipment-Centric Infrastructure

Example: $10M Automotive Parts Facility

Process-Specific Building Systems

Asset Categories Unique to Manufacturing

Production Equipment (5-Year)

Specialized Electrical (5-7 Year)

Industrial HVAC (7-Year)

Material Handling (5-15 Year)

Industry Benchmark: 35-45% Reclassification Rate

Manufacturing Types: Specialized Strategies

Light Assembly & Electronics Manufacturing

Key Assets for Acceleration

Typical Savings Example

Heavy Machinery & Metal Fabrication

Key Assets for Acceleration

Typical Savings Example

Food & Beverage Processing

Key Assets for Acceleration

Typical Savings Example

Pharmaceutical & Life Sciences

Key Assets for Acceleration

Typical Savings Example

Combining Cost Segregation with R&D Tax Credits

R&D Tax Credits for Manufacturers

Qualifying R&D Activities:

Combined Strategy Example

Mid-Size Automotive Parts Manufacturer

Combined Tax Savings:

Common Pitfalls: What Manufacturers Miss

Treating All Building Systems as 39-Year Property

Ignoring Site Improvements

Missing Leasehold Improvement Opportunities

Waiting Too Long After Purchase

Using Non-Engineered Studies

Not Combining with R&D Credits

The Solution: Work with Manufacturing Specialists

Manufacturing Assets That Qualify for Accelerated Depreciation

5-Year Property

7-Year Property

15-Year Property

Facility Types Covered

Food & Beverage Processing

Automotive Parts Manufacturing

Electronics Assembly

Chemical Production

Pharmaceutical Manufacturing

Distribution & Warehousing

Calculate Your Manufacturing Facility's Tax Savings

Tax Strategies Beyond Cost Segregation for Manufacturers

Section 179D

R&D Tax Credits

Bonus Depreciation

Section 45L

From Analysis to Tax Savings in 4-6 Weeks

Virtual Facility Assessment

Engineering Site Visit

Equipment & Systems Analysis

IRS-Compliant Report Delivery

Integration with Tax Filing

Frequently Asked Questions

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