Frequently Asked Questions
 
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  1. How much will the service cost me?
  2. Why cant my CPA do this?
  3. What is the IRS' position on Cost Segregation?
  4. What industries have completed a Cost Segregation Study?
  5. Which Property Types have the highest Savings potential?
  6. Why hasn't my accountant told me about this?
  7. How do you calculate TAX BENEFITS?
  8. How long does the Complimentary property assessment take?
  9. What are some examples of Personal Property that would get re-classified?
  10. What value can a owner realized AFTER selling their property?
  11. If I perform a Cost Seg Study and Sell within One Year, How do I avoid the IRS recapture of depreciation?
  12. Differences between Engineering-based and Residual Cost Segregation Methodologies?
 
1. How much will the service cost me?
The initial assessment that will show you how much you can save in Federal Income taxes...is FREE.   No Risk.  No Obligation.  No Cost!  
 
Should you choose to take advantage of the tax savings, our fixed fee is typically a fraction of your total benefit. In most instances, this will reduce your future quarterly estimated taxes - the savings can begin immediately and can continue for future years!
   
 
 
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2. Why can't my CPA do this?
Cost Segregation Analysis is relatively new and MOST CPA's do NOT have an in-house engineer that can perform these studies. Our engineers are trained and experienced at reading blue prints, estimating values of building components, and knowledgeable of the pertinent tax laws. They fully understand construction materials, costs, and function. With this knowledge and experience, they work with your CPA to get you the tax savings you deserve.
 
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3. What is the IRS' position on Cost Segregation?
The IRS has published a standard position on Cost Segregation through a Audit Techniques Guide, which can be found on the IRS website (click here)
Furthermore, the IRS has defined 13 elements of what is considered a "quality" cost segregation study, which are listed below or click here to see on IRS website
 
  1. Preparation By An Individual With Expertise And Experience
  2. Detailed Description Of The Methodology
  3. Use Of Appropriate Documentation
  4. Interviews Conducted With Appropriate Parties
  5. Use Of A Common Nomenclature
  6. Use Of A Standard Numbering System
  7. Explanation Of The Legal Analysis
  8. Determination Of Unit Costs And Engineering "Take-Offs"
  9. Organization Of Assets Into Lists Or Groups
  10. Reconciliation Of Total Allocated Costs To Total Actual Costs
  11. Explanation Of The Treatment Of Indirect Costs
  12. Identification And Listing Of Section 1245 Property
  13. Consideration Of Related Aspects (e.g., IRC 263A, Change In Accounting Method And Sampling Techniques)
The work provided by COST SEGREGATION ADVISOR will always meet or exceed these elements.
 
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4. What industries have completed a Cost Segregation Study?
Clients that have completed Cost Segregation Studies come from all sectors of the market, including Self-Storage;  Medical;  Hotels;  Golf Courses; Apartment complexes; and lots and lots of Office Buildings.
 
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5. Which Property Types have the highest Savings potential?
 
The following are Eligible percentages by Property Type that an owner should expect to be reclassified from  real to personal property - accelerating depreciation

Assisted Living

15% - 25%

Medical Office

20% - 50%

Apartment Building

20% - 35%

Office Building

20% - 40%

Auto Dealership

25% -50%

Parking Deck and Garage

5% - 10%

Banks

15% - 30%

Printing Facilities

15% - 30%

Computer Center

20% - 60%

Research & Development

20% - 60%

Distribution

5% - 15%

Restaurants

20% - 40%

Fitness/ Health Club

20% - 60%

Retail Store

20% - 30%

Golf and Resort

20% - 40%

Self Storage Facility

20% - 60%

Heavy Manufacturing

30% - 60%

Strip or Regional Mall

10% - 30%

Hospital

30% - 60%

Supermarket

20% - 30%

Hotel and Motel

20% - 30%

Warehouse

5% - 10%

Light Manufacturing

20% - 40%

   
       
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6. Why hasn't my accountant told me about this?
Most non-big four CPA firms don't have experienced cost segregation engineers on staff to physically inspect the property, examine architectural/engineering drawings and analyze cost data. Accountants may be able to capture some of the deductions, but without engineering expertise they are likely to overlook substantial portions of a building to achieve tax savings.
 
Cost Segregation historically was the domain of the "Big-4" accounting firms, serving BIG Business...charging BIG FEE's.   That the perspective many accountants still have of Cost Segregation and it is NO LONGER the case.
 
Cost segregation studies employ engineering, cost-estimating procedures, and tax knowledge to identify shorter-lived assets qualifying for 5-, 7- or 15-year write-off periods, rather than the usual 39 years for building and acquisition costs. The bottom line is your study should be conducted by someone with proven experience in the field.
 
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7. How do you calculate TAX BENEFITS?
The table below provides an EXAMPLE (intended to communicate CONCEPT) of how a Commercial Property owner realizes benefits when utilizing the accelerated depreciation (identified by an engineering based COST SEGREGATION STUDY) because the increased depreciation lowers the overall taxable income.  The lower income, means lower taxes to be paid!!
 
The assumptions below include:
   - Tax Rate of 40%
   - The Cost Segregation Study identified 30% of real property to be reclassified to personal property,
     changing the asset life from 39 to 5, 7, or 15 years.
 
NOTE:  a single IRS form (3115) is all that is required to realize these benefits immediately. 

No need for restatement or amending tax returns.
 
 
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8. How long does the Complimentary property assessment take?
Once the necessary information (click here) is provided for your property type, your assessment that will include a range of savings you can expect to realize will be provided within 4-7 days.
 
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9. What are some examples of Personal Property that would get re-classified?
Personal Property comprises a significant portion of any property's construction. Here are some examples:
 
Millwork  Decorative Items
Land Improvements Special Piping/Plumbing
Special Electrical  Emergency Lighting
Site Utilities Site Lighting
Concrete Drains Special Structures
Signage Window Coverings
Demountable Partitions Paving/Sidewalks
Carpet/Vinyl/Tile Security System
Fume Exhaust System Vinyl Wall-Coverings
Telephone/Data/TV Wiring Intercom System
 
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10. What value can a owner realized AFTER selling their property?
The conversion of Ordinary Income into Capital Gains income has to do with the technical nature of the allocation of the gain on the sale.  Many, if not most, accountants initially believe it is simply a timing issue.  However, when the mechanics of gain are discussed, they quickly realize increasing depreciation leads to paying taxes at the capital gains vs. the ordinary income rate. 
If  you recently sold a property, correcting a depreciation schedule makes a real difference.
 
 
For example, assume an investor sold a property in late 2005, obtained a cost-segregation study, and increased depreciation by $100,000.  The result is ordinary income taxes will be reduced by $35,000 ($100,000 x 35%), and capital gains taxes will be increased by $15,000 ($100,000 x 15%).  This nets the owners $20,000 in federal tax savings by simply correcting an error in the depreciation schedule after the property has already been sold.
 
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11. If I perform a Cost Seg Study and Sell within One Year, How do I avoid the IRS recapture of depreciation?
Many commercial property owners buy or build properties with the intention of selling them within one year.  There are several strategies available to a property owner in this situation to avoid or significantly reduce the IRS recapture of depreciation expenses.
 
The most common approach is to execute a 1031 Exchange to eliminate the recapture liability.  Your CPA can assist you in executing this option.
 
There are several additional options, if the 1031 Exchange is not possible in certain limited situations where the property owner does not intend to buy like properties in the future.  Our experts at CSA are available, at no cost, to discuss other alternatives and provide recommendations.
 
  • Provide certain contract language in property bill of sale
  • Get the buyer to pay for the Cost Segregation Study to get the tax benefits
  • Use Cost Study as significant benefit for the buyer to reduce their tax liability and the cost of  the property a "Full Price" incentive.
 
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12. Differences between Engineering-based and Residual Cost Segregation Methodologies?
 
> When dealing with the potential of the IRS...MORE is always better!!
 
RESIDUAL (Abbreviated):   The residual Cost Segregation method is an abbreviated estimation method in which only short-lived asset costs (e.g. 5- or 7-year property) are identified and estimated.  Long- lived asset costs (e.g. 27.5- or 39-yer property) are not included in the study.
 
ENGINEERING (Detailed): by contrast the Engineering method relies on solid documentation and utilizes construction –based documents such as blueprints, specifications, contracts, job reports, change orders, payment request, invoices, appraisals, etc. When estimates are required, they are based on costing data, either from contractors or from reliable published (e.g. R.S.Means or Marshall Valuation Service).
 
The sources of estimating data are clearly referenced, including identification of the specific volume, page, and item number.  Further, the same estimating techniques and unit cost data sources are used for all of the items that comprise the actual cost.
 
The Engineering method of Cost Segregation typically produces significantly HIGHER tax benefits for property owners than the Residual methodology.
 
 
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