Call Toll Free 1.800.843.1120 | E-Mail info@cpabr.com

Be-rated: The time value of money

01-12-2016

Wondering if cost segregation study is right for you? Consider the rate of return.

For example, one client said: “I am dropping more than $750,000 on my retail space renovation. Who cares if a cost segregation study accelerates depreciation from 39 years to 15 years or 7 years? The time value of money is next to nothing.”

That’s a great observation! But then again, consider other possible measures on rates of return: a) Your savings account is less than 1%, but it’s low risk. b) A well-diversified stock portfolio averages 12% to 15% depending upon which measure you use. Still, it’s not the same level of risk as an independent business; let alone the risk of a capital investment within that business.

So the right rate of return to use to evaluate cost segregation study benefits is really a risk adjusted opportunity cost somewhere north of 18%; not the prime rate of interest!

And in this client’s case, in addition to accelerating cash availability for the business, it also accelerated deductions for partial dispositions during the renovations!

Back to All Articles