Cost Segregation Study
Cost Segregation is a strategic tax savings tool that allows companies and individuals who have constructed, purchased, or remodeled any kind of real estate to increase cash flow by accelerating depreciation deductions and deferring federal and state income taxes.
The primary goal of a Cost Segregation Study is to identify all construction-related costs that can be depreciated over 5, 7, and 15 years and reassign them to their accurate life category.
A study can be performed on any remodeled, constructed, or acquired property as far back as 1987. Owners can then take those missed depreciation deductions in the year a study is conducted without amending prior year tax returns.
Any structure used for business or as a rental property is eligible for a Cost Segregation Study. The following graph represents the average percentage of building costs reallocated to a 5, 7, or 15-year property.
Other projects benefiting from cost segregation are shopping malls, airports, sports facilities, driving ranges, resorts, healthcare facilities, industrial buildings, auto service centers, and more.
Any leasehold improvements can also qualify for a Cost Segregation Study. These interior build-outs generally produce a proportionally higher ratio of qualifying property. Therefore, a Cost Segregation Study that analyzes the costs of leasehold improvements can be even more beneficial.
The Cost Segregation Process Includes the Following Steps:
- Review of Cost Detail
- Inspection of Facility
- Photograph & Document
- Review of Blueprints
- Cost Reconciliation
- Fixed Asset Studies
Review of Cost Detail
This review includes, but is not limited to, the general contractor’s application for payment, construction invoices, change orders, depreciation schedules, and appraisals, if these documents are available.
Inspection of Facility
We will inspect the facility in order to gain a full understanding of its use and condition, and to gather information that further supports the classification of capitalized costs into their appropriate class lives.
Photograph & Document
Photographs are taken of qualifying construction components and are included in our report.
Review of Blueprints
All available blueprints are reviewed, and the performance of quantity take-offs and cost estimates is evaluated for personal property not segregated in other cost information.
A reconciliation of all construction costs and estimates of the actual amounts incurred by tax life is conducted. This step includes adjusting estimates to account for location, time, and physical condition. We also perform an allocation of soft costs to any direct cost in each category to maximize your total benefits.
Preparation of a Report
This report complies with the IRS standards stipulated in the Audit Techniques Guide for Cost Segregation Studies. CRS is comprised of engineers and CPAs who thoroughly evaluate and identify areas of tax savings for our clients.
Fixed Asset Studies
Similar to a Cost Segregation Study, a Fixed Asset Study evaluates a company's assets and assigns misclassified fixed assets to appropriate tax lives. While a Cost Segregation Study focuses on buildings, a Fixed Asset Study encompasses all fixed assets a company owns. This results in immediate and substantial cash flow by accelerating deductions on assets that were previously placed in service with improper tax lives.
A proper Fixed Asset Study requires not only tax expertise, but also an understanding of engineering and construction concepts. A team of qualified engineers visit client locations to inspect and photograph assets, identify their use and function, and review supporting documentation including purchase orders, invoices, and blueprints. Our team then calculates the "catch-up" adjustments using our proprietary software. Our deliverable is a comprehensive report that includes all required documentation per IRS guidelines, including technical memos, supporting case law, detailed asset schedules, and cost records for reclassified property. Our thorough analysis ensures that all assets are accurately classified in order to optimize tax savings.
Fees for Fixed Asset Studies can be either flat fees or contingent upon our findings.
Preliminary Analysis and Savings Estimate for Cost Segregation Studies
A free preliminary analysis can easily be conducted to estimate to what extent a Cost Segregation Study can benefit an investor. We will review some basic project information, estimate the potential tax savings, and issue a proposal. Our proposals include a flat fee based on our estimated time and material to complete the project so that our clients know up front the final costs of the study. Our programs can be initiated with no up-front fees or charges.
We have performed hundreds of Cost Segregation Studies nationwide and have a reputation dating back 60 years. Our combination of tax and engineering knowledge not only makes us uniquely qualified to perform these studies, but also to educate other tax and real estate professionals on the subject. Our team of specialists includes engineers, construction specialists, and tax experts that can easily identify and resolve any tax issues that may be affected by a Cost Segregation Study.