Accounting for investments

Cost segregation procedure

What is cost segregation?

Cost segregation is a detailed separation of fixed assets on the basis of tax regulations and Classification of Fixed Assets and determination of initial values of fixed assets including indirect costs.

Why is it worth it?

ObjectivesBenefits

Increasing the basis for the application of higher depreciation rates for income tax purposes.

Increase in monthly depreciation write-offs by up to 2.5 times compared to an investment where only the building and basic structures (car park, fencing) were separated.
Minimum income tax on commercial property.Lower tax base due to lower value of the building itself.
Preparation of the real estate for sale.Transparent fixed asset structure and better due diligence results from the buyer.
Inventory of assets.Review of assets and ability to professionally label fixed assets.
Property tax review.Possible reduction of the tax base for structures.

Sample calculation

Fixed asset (group)Initial valueDepreciation rateDepreciationMinimum tax
BeforeAfterBeforeAfterBeforeAfterBeforeAfter
Building100 m66 m2,5%2,5%2,5 m1,65 m378 k235 k
Ventilation and air conditioning 10 m 10,0% 1 m  
Telecommunication systems9 m10,0%0,9 m     
Electrical Switchgear7 m10,0%0,7 m     
Power generators2 m14,0%0,28 m     
External buildings6 m4,5%0,27 m     
Depreciation write-offs per year2,5 m4,8 m 

Benefits

Increase in depreciation write-offs in 1 year by PLN 2.3 million (nearly 2 times).

Minimum tax encumbrance reduced by PLN 143 k.

When do you apply cost segregation?

  • At the stage of construction / putting the investment into use;
  • At the stage of purchasing a ready-made property;
  • During the use of the investment, also at the acquisition of a company - reasonable in several circumstances (e.g. when the company has so far reported a loss or a small income).

Why an external advisor should be used?

During the investment and at the stage of putting the investment into use, external support is necessary, because accounting services:
  • usually do not have enough time;
  • do not carry out technical inspection of the investment;
  • do not combine technical knowledge with the practice of separating fixed assets;
  • do not usually keep extensive analytical records of the fixed assets under construction account, and therefore
  • are not able to determine the initial values.

Our experience

We settle various types of investments, both as part of the settlement of newly created facilities, as well as adjustment of settlements in order to seek tax savings:
  • shopping centres;
  • office buildings;
  • hotels;
  • office and service complexes;
  • industrial halls;
  • warehouses;
  • factories;
  • underground car parks;
  • technical infrastructure.

Feel free to contact us

Justyna Bauta-Szostak

Head of the Real Estate Practice | Partner | Tax Advisor
E: justyna.bauta-szostak@mddp.pl
T: (+48) 502 241 631

Rafał Kran

Real Estate Practice | Manager | Tax Advisor
E: rafal.kran@mddp.pl
T: (+48) 693 290 919

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