A cost segregation study is an engineering process that accelerates tax depreciation on buildings, improving cash flow by reallocating building component costs and land improvements to shorter depreciable lives. This can lead to significant tax savings and cash flow increases, with a potential net present value benefit of $0.12 to $0.23 for each dollar reclassified. For example, in an auto dealership case, cost segregation resulted in increased depreciation expense and significant deferred taxes.

1. Cost Segregation Studies www.costsegregation.com

2. What Is A Cost Segregation Study? A formal engineering process acceptable to the IRS that accelerates tax depreciation on buildings and considerably increases cash flow . Identifies building component costs and land improvements – commonly depreciated over 27.5 or 39 years. Re-allocates a significant portion of these costs to asset classes with shorter depreciable lives .

3. Cost Segregation Buckets Before After 39-year or 27.5-year Soft Costs 5-year 39-year or 27.5-year 7-year 15-year Cost Seg

4. Re-Allocation to Shorter Tax Lives Per Revenue Procedure 87-56, qualifying construction costs from the property should be depreciated over 5, 7, and 15 years. A re-allocation of assets results in: Accelerated depreciation deductions Reduced tax liability Increase in cash flow

5. Benefit: Accelerated Depreciation Deductions

6. Benefit: Accelerated Depreciation Deductions Typically, cost segregation will reclassify anywhere from 10% to 60% of the total building cost basis into shorter recovery periods. For every dollar reclassified, 10% to 34% goes to increased cash flow over the first five years. Over the life of the property, a NPV benefit of $0.12 to $0.23 is generated for each dollar reclassified. Note: Above table assumes 41% tax rate and 8% discount rate Property Reclassified from 39-Year Property to: Cash Flow Increase in First 5 Years for Every Dollar Reclassified Net Present Value Benefit (Life of Property) for Every Dollar Reclassified 5-Year Property $0.34 $0.23 7-Year Property $0.27 $0.21 15-Year Property $0.10 $0.12

7. Summary of Benefits Tax savings assumes 41% tax rate and 8% discount rate Sample Auto Dealership Dealership placed in service two years prior to study CS moves 8% of cost basis into 5-year and 12% into 15-year property Depreciation expense increases $745,000 over next 5 years Generates $305,000 in deferred taxes Total deferral has a $257,000 NPV Without Cost Segregation With Cost Segregation Total Net Increase in Benefits 39 Year 5 Year 7 Year 15 Year 39 Year Depreciable cost basis $7,000,000 $560,000 $ - $840,000 $5,600,000 First 7 years depreciation $1,166,667 $560,000 $ - $418,396 $ 933,333 $ 745,062 First 7 years income tax deferral $ 305,475 Net present value over the life of the project $ 257,467

8. Questions… KBKG, INC. COST SEGREGATION SPECIALISTS Contact Information Mitchell Lardner Director, Business Development 626.449.4225 x506 [email_address] www.kbkg.com www.costsegregation.com