What Is A Cost Segregation Study?
The Cost Segregation Study allows corporations and investors to reduce their taxable income through accelerated depreciation on their real estate holdings, resulting in increased after-tax cash flows.
If you have built, acquired, or renovated a commercial, industrial, or residential facility over the last 15 years, and have not performed a cost segregation study, it is more than likely you are paying too much federal income tax.
The Concorde Group works with real estate owners and their CPA’s, in all fifty states, to increase cash flow from constructed buildings, purchased properties, and building renovations by accelerating depreciation expense deductions.
We follow the preferred IRS method, using an engineered approach, to segregate your facility’s components into shorter live assets resulting in significant tax savings.
Clients that can use Cost Segregation:
- Entities with 39-year assets, typically $750,000 or more
- Real estate owners that have acquired new property within the last 15 years
- Real estate owners that have constructed an addition or renovations to an existing facility
- Automobile dealerships and service centers
- Accounting firms
- Apartment buildings
- Banks and financial institutions
- Day care centers
- Distribution and warehouse facilities
- Engineering and R&D
- Energy, Utilities and Mining
- Entertainment and Media
- Fitness centers
- Golf courses
- Hotels and Resorts
- Long-term healthcare and Assisted living
- Manufacturing/ Industrial
- Medical office buildings
- Office buildings and leased space
- Retail – shopping centers/ department stores
- Restaurants
The Process:
- Obtain closing statement, facility blue-prints, construction data, current rent roll, or appraisal if applicable.
- Determine final costs to be depreciated (excluding land).
- Provide the client with a conservative estimate of Tax Savings as a result of the study in a detailed presentation.
- Establish a firm price engagement fee – not contingent on our results.
- Establish a project timeline with you and your CPA.
- Meet with a facilities manager or representative to perform a thorough review and site visit of the subject properties.
- Properly document the distribution of building components per the IRS regulations and court rulings.
- Conduct a close-out meeting to explain and deliver the final report.
Myths and Realities about Cost Segregation
Myth: My accountant already makes sure I get all allowable depreciation.
Reality: As we all know, IRS rules and regulations are extremely complex. Cost segregation involves not only specialized tax law knowledge, but construction engineering expertise such as the ability to read blueprints and building specifications.
Even if your accountant understands the basics of cost segregation, performing cost segregation without engineering or construction expertise along with a deep understanding of the relevant tax law changes, IRS Private Letter Rulings, and court cases, valuable tax benefits will certainly be missed. IRS cost segregation audit guidelines clearly state that “a study by a construction engineer is more reliable than one conducted by someone with no engineering or construction background.”
In contrast, an accountant’s ad-hoc cost segregation calculation or reliance on a contractor (who typically is familiar neither with a subcontractor’s cost for specific property items nor the tax law) is a recipe for disaster on examination.
Myth: A cost segregation study is an inconvenience and costs too much money.
Myth: It’s too late to change the depreciation on our building.
Myth: Doing a cost segregation study will trigger an audit.
Myth: Some taxpayers are reluctant to use cost segregation, equating it with a high-risk tax shelter.