Cost Segregation Services with Source Advisors
What is Cost Segregation?
Source Advisors’ Cost Segregation team enables you to accelerate depreciation during the early years of building ownership, freeing up capital when investing in your business is critical. For companies that own commercial real estate, multi-family housing or tenant improvements, Cost Segregation services are one of the most significant opportunities available to reduce tax liability and increase short term cash flow.
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 spent 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
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 information provided by you, such as: 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.
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).
Eligibility of Building or Improvements
Placed-in-service since 1987 though, generally speaking, most studies are limited to the last 5-7 years.Currently depreciating over 27.5 or 39 years.$500,000+ in capitalized costs is a good starting point to begin thinking of Cost Segregation.Have been acquired, constructed, expanded, or remodeled.The property owner must be a tax-paying entity.Ideal building types include: Apartment complexes, auto dealerships, banks, casinos, distribution centers, grocery stores, health care facilities, hotels, manufacturing facilities, nursing homes, office buildings, restaurants, shopping centers, sports facilities, warehouses, and other specialized property types. Typically, the more complex buildings will generate the greatest benefit from a Cost Segregation study.
Benefits of Cost Segregation Services with Source Advisors
The benefits of a Cost Segregation services are typically measured in terms of:
Increased cash flow generated in earlier years; and the greatest benefit 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; as well as
• § 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.
Total Potential 1st Year Increased Cash Flow with Source Advisors
The Source Advisors Approach to Cost Segregation
We Don’t Train Our Team on Your Dime
We only hire heavily experienced cost segregation specialists. We believe experience is critical to maximizing the benefits of Cost Segregation, and the majority of our team has spent between 10 and 20+ years managing Cost Segregation projects. Even our least experienced member has conducted more studies than many who manage projects at large firms.
Specialized In-house Dedicated Cost Segregation Team
Our in-house Cost Segregation team is composed of architects, professional engineers, CPAs, MBAs and LEED cost segregation specialists dedicated solely to Cost Segregation. Our management team is involved in every project we’re engaged to perform and often conduct the site visits themselves. And, with rare exceptions, we always conduct a site visit. The IRS expects it, and we believe it is the best way to accurately assess a property.
We Have a National Presence
Our project managers are located in all major markets across the United States.
We Follow the IRS Cost Segregation Guidelines
Our studies are designed to meet the expectations of the IRS as described in its Cost Segregation Audit Techniques Guide.
Audit Defense
Audit defense is included in all Cost Segregation studies that we perform.
Fixed Asset Services Provided by Source Advisors
Source Advisors offers several Cost Segregation studies to meet each company’s unique needs and circumstances:
Cost Segregation – Standard 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 eligible for Routine Maintenance Safe Harbors, De Minimis.
Repairs associated with remodeling of existing buildings.
Enhanced Cost Segregation
Our Standard Cost Segregation study that also focuses on prospective tangible property regulations needs
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.
Dispositions Study
Current year study only
A detailed analysis of existing assets removed from service in the current tax year for the purpose of creating a dispositions expense; and
Includes both §1245 and §1250 assets.
Fixed Asset Review
Detailed review of a taxpayer’s depreciation schedule
Fixed asset reviews allows 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 year 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.
§179D Study
Energy-efficiency study for commercial real estate
A 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.
Eligible building systems include the building envelope, interior lighting systems, heating, cooling, ventilation, and hot water systems.
§45L Study
Energy-efficiency study for residential housing
A tax credit that offers developers a means to offset the costs associated with building energy-efficient single family or multifamily properties.
The credit provides a dollar-for-dollar offset against taxes owed or paid in the tax year in which the property is sold or leased.
Cost Segregation FAQs
What if my commercial property business is audited by the IRS - Will Source Advisors be available to help me?
How long does a Cost Segregation study take to complete?
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.