Cost Segregation Services Los Angeles:
Accelerate Depreciation and Free-Up Capital
Detailed Cost Segregation studies by the experts to maximize depreciation.
What is Cost Segregation?
Cost Segregation enables you to free-up capital when investing in your business by accelerating depreciation during the early years of building ownership. This often includes identifying various expensing opportunities associated with commercial properties. Specifically, a Cost Segregation study front-loads the depreciation expense that the property would otherwise receive over 27.5 or 39 years. The accelerated time frame is 5, 7, and 15 years.
If you own commercial real estate, multi-family housing, or tenant improvement, the Source Advisors Cost Segregation team can help you increase your short-term cash flow and reduce tax liability.
Is Your Building Eligible?
The ideal building types for a Cost Segregation study are listed below.
Apartments
Auto dealerships
Banks
Casinos
Distribution centers
Grocery stores
Health care facilities
Hotels
Manufacturing facilities
Nursing homes
Office buildings
Restaurants
Shopping centers
Sports facilities
Warehouses
Other specialized property types
- Placed-in-service since 1987. However, many Cost Segregation studies are limited to the last 5 to 7 years.
- It should be currently depreciating over 27.5 or 39 years.
- $500,000 in capitalized costs (typically at minimum).
- Has been constructed, acquired, expanded, or remodeled.
- The property owner is a tax-paying entity.
How Cost Segregation Works
The Source Advisors team consists of highly trained experts, including professional engineers, architects, CPAs, MBAs, and LEED-certified professionals who have spent decades managing Cost Segregation services. You can expect our team to thoroughly analyze each building in order for us to identify your maximum benefit as a taxpayer.
The benefits of Cost Segregation are measured in terms of:
- Increased cash flow generated in earlier years; and the greatest benefits from a Cost Segregation study.
- Net Present Value (NPV) of receiving depreciation expense deductions earlier rather than prorated over the life of the property.
Additionally, to maximize benefits, Cost Segregation studies may be coordinated with other services such as:
Repairs and dispositions under the Tangible Property Regulations §179, §179D, and §45L studies.
Assumptions:
- Tax benefit per $1,000,000 of capitalized costs.
- Interior improvements may be Qualified Improvement Property (QIP) where applicable.
- Tax rate is 35% and discount rate is 6%.
- Bonus depreciation applies to §1245 and QIP property.
Learn more about Cost Segregation services in Los Angeles.
How We Help Los Angeles Business Owners
Our Los Angeles 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
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
Once the proposal is signed, our team will gather and analyze the information provided by you, including construction drawings, invoices, change orders, depreciation schedules, etc.
Perform Site Visit and Study
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
Each study is reviewed a minimum of three times to ensure accuracy and quality.
Finalize the Report
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
In the event that a study is reviewed in audit, Source Advisors’ highly experienced management team will provide audit support through appeals.
What Makes Our Cost Segregation In Los Angeles Different
Cost Segregation studies with Source Advisors are different than any other.
We Don’t Train Our Team On Your Dime
Our team has decades of experience with Cost Segregation studies.
We Follow the IRS
Our studies meet the expectations of the IRS.
National Coverage
Project managers are located both within the greater Los Angeles area and across other major U.S. cities.
Audit Defense
We’re here to help if you ever get audited.
Customized Cost Segregation Services Based On Your Needs
Standard Cost Segregation Study
- Identifies §1245 Property [5, 7, & 15 year property (Typ.)]
- §1250 Qualified Leasehold Improvements, Qualified Retail Improvements, & Qualified Restaurant Improvements (15 year straight line property).
- §1250 Qualified Improvement Property (15-year straight-line property and bonus depreciation for §1250 interior improvements after 12/31/2017).
- Property is eligible for Routine Maintenance Safe Harbors, De Minimis.
- Repairs associated with remodeling of existing buildings.
Enhanced Cost Segregation Study
- Identifies units of property, building systems, and major components.
- Stops short of componentizing the §1250 building components.
- The level of detail is highly customizable depending on the type of property as well as the property owner’s tax strategy and future Tangible Property Regulations needs.
Current Year Study: Disposition Study
- A detailed analysis of existing assets removed from service in the current tax year for the purpose of creating a dispositions expense.
- Includes both §1245 and §1250 assets.
Detailed Review of a Taxpayer’s Depreciation Schedule: Fixed Asset Review
Fixed asset reviews allow companies to correct past depreciation schedules and maximize depreciation expense deductions, achieving compliance and setting a precedent for managing depreciation schedules going forward. While fixed asset reviews are not a new concept, the opportunities afforded to taxpayers by the Tangible Property Regulations, PATH Act, Tax Cuts and Jobs Act and CARES Act are highly complex and difficult to apply.
A Source Advisors Fixed Asset Review might include one or a combination of the following services:
Cost Segregation opportunities.
Repair opportunities or risks.
§1245 property improperly capitalized or bonus incorrectly applied.
Full asset dispositions.
Partial asset dispositions.
Opportunities to apply bonus depreciation.
Opportunities to apply for qualified leasehold, restaurant, and retail improvements for years placed in service prior to 2018.
Qualified Improvement Property (QIP) for years placed in service after 2015.
Qualified Real Property (QRP) for years placed in service after 2017.
Energy-Efficiency Study For Commercial Real Estate: §179D Study
- §179D StudyA tax deduction that provides a deduction of up to $1.80 per square foot for the installation of systems that reduce the total energy and power costs by 50 percent in comparison to a building meeting minimum requirements set by ASHRAE Standard 90.1-2001 for buildings and systems placed in service before January 1, 2016, or ASHRAE 90.1-2007 for buildings and systems placed in service before January 1, 2017.
- §179D StudyEligible building systems include the building envelope, interior lighting systems, heating, cooling, ventilation, and hot water systems.
Energy-Efficiency Study For Residential Housing: §45L Study
- §45L StudyA tax credit that offers developers a means to offset the costs associated with building energy-efficient single-family or multifamily properties.
- §45L StudyThe credit provides a dollar-for-dollar offset against taxes owed or paid in the tax year in which the property is sold or leased.
Case Study:
Multi-Tenant Office Building
The subject property is a two-building, 80,000 square foot complex with a small cafeteria for the tenants. The property was acquired for $6,700,000, placed in service in 2019, and sits on a 6-acre site.
As with many office buildings, the site is improved with ample parking, a monument sign, and attractive landscaping. The buildings are four-story, steel frame structures, with a glass curtain wall and built-up membrane roofs. Interior finishes such as carpeting, vinyl flooring, painted drywall are commercial grade, and the electrical, plumbing, HVAC, and millwork are custom to each tenant’s needs.
% OF RECLASSIFIED PROPERTY
BENEFITS* |
|
| Increased Depreciation in 1st year | $1,653,527 |
| Increased Depreciation in years 1-5 | $1,481,739 |
| Increased Cash Flow in 1st year | $578,734 |
| Increased Cash Flow in years 1-5 | $518,000 |
| Net Present Value over 39 years | $354,799 |
*Assuming a 35% tax rate, 6% discount rate, 100% Bonus Depreciation and the property will be held for 39 years
Strategy
The Source Advisors Cost Segregation engineers were engaged to analyze the acquisition cost. They then applied a cost model to allocate the purchase price to various trades and building components. They conducted a thorough inspection of the property where estimates were performed. Key property personnel were also interviewed. A detailed report was delivered, identifying and documenting all of the components that qualify for a shorter tax life.
Results
Source Advisors reclassified 10% or $670,000 as 15-year land improvements and 15% or $1,000,005 as 5-year tangible personal property. This is about average for a Class A office building with a mix of professional service tenants.
How Much Does a Cost Segregation Study Cost?
The cost of a Cost Segregation study is based on the time it takes to perform the study. It is not associated with the projected or realized savings. Many clients ask how long the study might take, which is depending on various factors, including the size of the building, the business activity in the building, and the number of tax years needing to be analyzed.
Los Angeles Cost Segregation Specialist: FAQ
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.
What is Cost Segregation analysis?
A Cost Segregation analysis is also known as 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.
How does Cost Segregation give you immediate cash flow?
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).
Cost Segregation Services with Source Advisors
Detailed Cost Segregation studies by the experts to maximize depreciation.