At Cost Segregation Study
LLC, our approach is goal-oriented. We create
value for our clients, and do not interfere with current
business relationships. We are willing to work
with your existing accountant to help you r company
realize the value our service can provide.
Our construction engineering and tax specialists examine
real estate holdings to determine which costs can be
segregated and depreciated over a much shorter recovery
period, rather than over a 39-year depreciable life.
Our experts are trained
in this technical are of taxation and
engineering-based approach of constructing your
facility.
Our consultants have
researched all the highly technical court cases, IRS
rulings and procedures as they relate to cost
segregation.
Our professionals can
read and interpret blueprints and specifications.
Our team has performed
thousands of studies ranging from warehouses to
highly automated processing plants.
We build strategic
alliances with CPA firms with engineering support to
complete outsourcing.
We have experience in
dealing with IRS audits as it pertains to asset
allocations.
We've saved millions of
dollars
for businesses like
yours!
WHAT IS COST
SEGREGATION?
Cost segregation is not new; on the
contrary, it has been in existence since
1954 when the IRS allowed for certain
personal assets to be accelerated into a
shorter life class. However, it wasn’t
until Hospital Corporation of America
sued the IRS in 1997 and won that the
IRS revisited the issue of accelerated
depreciation. Subsequently, after the
Tax Act of 2004, the IRS’ chief counsel
issued a memo stating that “…cost
segregation, for it to be properly
applied, had to involve those with
competencies in architecture,
engineering or construction and/or
construction techniques, in order for
personal property assets to be
accurately identified and segregated.”
Therefore, a typical study is one where
the building owner can increase the
amount of depreciation taken on their
commercial property…more specifically,
the “personal” property assets which are
those non-structural in nature.
Consequently, cost segregation is the
process to identify personal property
assets that often get buried or lumped
together within the real property
asset. Our engineers reclassify those assets to the shortest possible
depreciable life to enable the real
estate owner to maximize their tax
depreciation deduction, thereby reducing
current income tax obligations.
If you, as a business owner,
are undertaking construction, renovation
or the purchase of a building, you quite
probably are
eligible for substantial federal and
state tax savings.
Certain assets related to the project
may qualify for accelerated
depreciation, meaning you can take
larger tax deductions over a shorter
period. The benefits of larger tax
deductions include increased cash flow,
a reduction in real estate taxes,
reduction in insurance costs,
and lower cost of capital in the first
few years following a project or
purchase.
A cost segregation study, conducted by
our qualified professionals at
Cost Segregation Study, LLC, can help you
identify opportunities to claim
accelerated depreciation.
Substantial tax savings for your
business may lie in the floor beneath
your feet, within the walls around you
or even in the shrubs outside your
building...but only a cost
segregation study, performed by a
qualified engineer, can tell you for sure.
WHAT IS IT FOR?
A cost segregation study is a highly
detailed and strategic
analysis that allows companies that have
constructed, bought, expanded or
remodeled real estate to increase their
cash flows by accelerating
deductions on short-life assets.
To do so, the study identified,
segregates and reclassifies property
costs currently being depreciated over
the typical 39-year depreciable period
to shorter depreciable periods of 15, 7,
or even 5 years.
This means you can enjoy tax deductions
right now that you’d otherwise have to
wait years to receive. So,
not only do you increase the net present value
of current tax savings, but also boost
cash flow as well.
The truth is, the IRS actually requires
property assets to be categorized
appropriately according to it’s asset
life class which is why they recommend
using those with competencies in
engineering or architecture. While the
IRS does not widely enforce this
provision, it is nevertheless mandated.
Of course, for those business owners who
do apply it properly, there are many
rewards…and more and more, the small
business person especially is becoming
aware of this seldom-used opportunity.
A cost segregation study may be a
particularly wise move if you’re:
Building a new facility
Acquiring an existing building,
Improving, renovating or
expanding an existing building, or
Conducting leasehold
or tenant improvements on your current
facility.
The analysis works most efficiently for
new buildings under construction, but it
can uncover retroactive deductions for
any age building as long as it was
acquired by the current owner since
1/1/87. Otherwise, any building
purchased or built since January 1987
will qualify for a cost segregation
study.
WHOS IS INVOLVED?
A cost segregation study is not
a mere depreciation analysis. It calls
for far more than just classifying line
items from construction invoices. The
process requires a team of experts
well-versed in accounting regulations
and tax laws, as well as engineering and
construction principles. Our engineer
plays a starring role by quantifying
building components and estimating the
costs of those components utilizing IRS
guidelines. The team may also
include a CPA, contractor, construction
estimator and/or architect.
Together, they’ll analyze detailed
working drawings, mechanical and
electrical plans, and blueprints to
segregate the structural, electrical and
mechanical components from those linked
to personal property. The study
will also allocate “soft costs,” such as
architect and engineering fees,
utility/easement fees, surveyor’s fees,
and permit costs to all
components.
HOW MUCH CAN YOU SAVE?
Property owners often view building
components as parts of the entire
structure and depreciate everything over
39 years. However, many expenditures
fall into categories with much shorter
depreciable lives.
For instance, assets such as the parking lot,
landscaping, fencing, tire stops, and
signage can typically be reclassified as
15-year property. Carpeting, decorative
trim, certain lighting and fixtures,
sprinkler heads, and much more can be
accelerated into a 5- or 7-year life
class.
Also, the current Section 179 expensing
rules still apply for depreciation if
you operate your business as a limited
liability company and hold your building
in that entity. And perhaps best of
all, the fee for the cost segregation
study that brings about these savings is
generally only 10% to 20% of the
resulting cash flow increase and often
is even less.
So, how much can you save? Typically,
15% or more of your property’s
tax-basis qualifies for accelerated
benefits. If you own a million dollar
property, you would potentially see an
additional $150,000 in accelerated
depreciation, and, of course, your tax
bracket would dictate your actual
after-tax cash benefit. Speak with your
tax professional to know for sure.
WHO BENEFITS?
Any
property owner who is profitable and
whose property’s tax-basis is at least
$300,000 or your tenant/leasehold
improvements are $100,000 or more.
Typical property types that qualify,
though not limited to this list, are:
Apartment Complexes
Automobile Dealerships
Banks
Casinos
Doctor's Offices
Distribution Centers
Fast Food Restaurants
Food Processing Facilities
Funeral Homes
Hotels/Motels
Hospital/Medical Center
Manufacturing Plants
Nursing Homes
Office Buildings
Rental Houses
Retail Shops
Restaurants
Shopping Malls
Sports Stadiums
Supermarkets
INVESTMENT ELIGIBILITY
All post-1986 real estate
construction, building acquisitions
or improvements
New buildings under
construction
Existing property constructed
anytime, but placed in service
beginning 1/1/87
Existing buildings undergoing
renovation or expansion
Tenant/leaseholds improvements
and build-outs
Our dedicated cost segregation engineers have completed over
4,000
cost segregation studies for clients
throughout the United States ranging in
size from $235,000 to
over
$200,000,000 in property value. Tax enactments by President Bush in
2002 have amplified the need for cost
segregation with the right team of
qualified engineers, appraisers/estimators and
CPAs. As laws become more
complicated and seemingly more
anti-business, it now becomes imperative
to have your real estate portfolio
reviewed to determine those assets
qualifying for shorter life classes once
hidden in your property.