WHAT ROLE DOES “TIME VALUE OF MONEY” (TVM) PLAY?
Cost segregation is based on the fundamental principle that “a dollar today is worth more than a dollar tomorrow”. The same logic applies to the statement: “a tax deduction today is worth more than a tax deduction tomorrow”. By accelerating a buildings’ depreciation, property owners can lower their tax liability and thus realize a significant increase in cash flow. This larger cash flow—resulting from postponing tax payments—is available for other investments. “The major advantage of cost segregation is not necessarily that it will produce more depreciation deductions. Instead, due to the time value of money, the advantage of these front-loaded deductions will be quantifiably greater than had the deductions been spread over longer periods of time using slower depreciation methods.” Journal of Accountancy © 2005 by the AICPA THE IRS’s AUDIT TECHNIQUES GUIDE (ATG) In late 2004, the IRS released the guidelines their agents must follow for audits of cost segregation studies. This guide rev
