Cost Segregation
Detailed Cost Segregation studies by the experts to maximize depreciation.
Cost Segregation
What is a Cost Segregation Study?
A Cost Segregation study might be thought of as an interest free loan in that it front-loads the depreciation expense deduction a property would otherwise receive over 27.5 or 39 years.
Cost Segregation studies free up capital by accelerating the depreciation of personal property (§ 1245) and Qualified Improvement Property (QIP) as well as identifying various expensing opportunities associated with commercial real estate. The accelerated time frame is typically 5, 7 and 15 years rather than 27.5 or 39 years for the building (§ 1250).
How Does Cost Segregation Work
Cost Segregation is a highly specialized field and we believe that only highly trained experts should perform our studies. The majority of Source Advisors’ team of architects, professional engineers, CPAs, MBAs and LEED certified professionals have spDetailed Cost Segregation studies by the experts to maximize depreciation.ent between 10 and 20+ years managing Cost Segregation services. Each cost segregation specialist is highly trained at working with clients, gathering the necessary data, and analyzing each building to assure that we identify the maximum benefit that each taxpayer is entitled to receive.
Our Cost Segregation services are designed to exceed the IRS’ Cost Segregation Audit Techniques Guide’s Chapter 4-Principal Elements of a Quality Cost Segregation Study and Report. Every basic Cost Segregation service includes the following:
Pre-qualification and Proposal
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Every Source Advisors study begins with our detailed pre-qualification process where the scope of work is defined and an estimate of benefits is generated. A flat fee quote is also presented with the estimate of benefits.
Request and Gather Data
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Once the proposal is signed, our team will gather and analyze information provided by you, such as: Construction drawings, invoices, change orders, depreciation schedules, etc.
Perform Site Visit and Study
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From the invoices, we will identify any property that might be specifically reclassified. In the likely event that the invoice detail is insufficient for the entire study, we will augment the invoices with detailed estimates derived from the construction drawings and site visit of the property. The results will be presented in a report that includes our methodology, relevant case law, definitions, property description, photos, and detailed schedules of our calculations.
Review
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Each study is reviewed a minimum of three times to ensure accuracy and quality.
Finalize the Report
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A draft report is first issued and discussions are held with the taxpayer and their CPA to verify Source Advisors assumptions and findings. Once all questions have been addressed and adjustments made to the report, the final report is issued.
Audit Support
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In the event that a study is reviewed in audit, Source Advisors’ highly experienced management team will provide audit support through appeals.
When Should a Cost Segregation Study be Conducted?
The ideal time to have a Cost Segregation service conducted is during the year you are purchasing, remodeling or constructing a commercial property. If you were unable to perform a study when the building was placed-in-service, we might still perform a lookback study which will correct your depreciation schedule going forward and generate a catch up in missed depreciation (§ 481(a) adjustment).
FAQ’s
What if my commercial property business is audited by the IRS - Will Source Advisors be available to help me?
Yes. At Source Advisors, we stand behind our Cost Segregation services. Our team provides unparalleled studies that result in meticulous attention to detail identifying construction-related costs. To request sample Cost Segregation studies, please Contact Us.
How long does a Cost Segregation study take to complete?
A Cost Segregation study typically takes 30-45 days to complete. The Source Advisors team will keep you up-to-date throughout the study and answer any questions you have regarding the services being conducted.
What information do I need to provide Source Advisors for an estimate?
The more detailed information you can provide, the better. This ensures a more accurate estimate and we might ask for additional information to clarify our understanding of your particular project and needs. At minimum, we need:
- Capitalized costs for your project.
- Years that it was capitalized in.
- Depreciation schedule, if available.
- Brief description of your business.
- Number of floors, square footage of the building site.
- Property address.
How much does a cost segregation study cost?
The IRS specifies the cost of Cost Segregation should be based on the time required to perform the study; not a percentage of the projected or realized savings. The time involved in a study is drive by multiple factors. Here are just a few aspects of the project that will impact the time involved to perform the study: how big is the building; what is the business activity in the building; and how many tax years will be analyzed?
What is cost segregation in real estate?
Briefly, Cost Segregation is an IRS recognized tax benefit strategy whereby we identify specific components of a building or improvement project that can be treated as personal property or land improvements for Federal tax purposes rather than real property. The cost for the personal property depreciates over 5 or 7 years and land improvements depreciate over 15 years rather than the 39 years or 27.5 years depreciation for real property.