Federal Tax

The Investment Credit and Cost Segregation (Portfolio 583)

  • This Portfolio analyzes the rules regarding credits against income tax on a portion of the price of selected productive assets and their use in determining cost segregation of assets.


Bloomberg Tax Portfolio, The Investment Credit and Cost Segregation, No. 583, analyzes in detail the statutory rules that allowed for a credit against income tax on a portion of the purchase price of machinery, equipment, and other selected types of productive assets and their utility in determining cost segregation of buildings and other assets to maximize tax benefits. The Portfolio discusses the rules as to what property qualified for the investment credit, the computation of the amount of the credit, the various limitations on the amount of credit available in a taxable year and the elections to allow the credit to lessees. Although repealed, the body of law interpreting the investment credit continues to have applicability in other areas of the tax law such as depreciation computations, §179 expenses and the rehabilitation credit. The Portfolio also discusses the energy tax credit, the former reforestation credit, the qualifying advance coal credit and the qualifying gasification project credit.

In analyzing the extensive case law interpreting which property qualified for the investment credit, the Portfolio summarizes the legal authority stating which building components may qualify for recovery periods less than the recovery period of the building itself. The Worksheets also contain draft language for an opinion letter setting out a cost segregation study that determines the appropriate recovery periods for various depreciable improvements in a building.

For a detailed discussion of the rules governing the investment credit at-risk rule, see 550 T.M., At-Risk Rules. Also, for a detailed discussion of the rehabilitation credit, see 586 T.M., Rehabilitation Tax Credit. Finally, for a discussion of the overall operation of income tax credits, see 506 T.M. Tax Credits — Concepts and Calculation.

This Portfolio may be cited as Williamson, 583 T.M.,The Investment Credit and Cost Segregation.

Table of Contents

I. Introduction
II. Overview of Former Investment Credit
III. Post-1990 RRA Investment Credit
IV. Property Eligible for Investment Credit
V. Application of the Investment Credit
VI. Utilization of Investment Credit Principles in Cost Segregation Studies
VII. List of Items and Authorities to Create Cost Segregation Analysis for Buildings and Structural Improvements

Donald Williamson
Amer Univ Kogod Bus School