What is a Cost Segregation Study (or Cost Seg Study)?
Cost Segregation or Cost Seg is the practice of reclassifying assets to a shorter depreciable life by using a popular IRS allowed procedure. Having a Cost Segregation Study performed can result in significant short term tax savings right to your bottom line. A good Cost Segregation Study can reclassify as much as 30% to 50% of your construction project costs or property acquisition costs, and maybe even more, to shorter time periods depending on the type of project.
Generally speaking, it is easy to identify furniture, fixtures, & equipment (FF&E) that are depreciated over 5 or 7 years for tax purposes; however, a Cost Segregation Study goes far beyond that by identifying and dissecting construction costs that are usually depreciated over 27.5 or 39 years. The primary goal of a Cost Segregation Study is to identify all construction costs that may be depreciated over 5, 7, or 15 years, thereby maximizing your cash flow from your investment. Did you know that typically 30% to 90% of the total electrical costs for most buildings can be depreciated over 5 or 7 years?
The tax benefits of a professionally performed Cost Segregation Study can add up fast. For example, in your Cost Seg Study, every $1 million dollars in assets reclassified from a 39 year recovery period to a 5 year recovery period results in approximately $170,000 in net present value savings (assumes a 5% discount rate and a 38% marginal tax rate). This is a very simplified example, but as you can see, the results are significant.
With our Detailed Engineering Approach Cost Segregation Study, our clients have indisputable evidence for major tax savings that will withstand IRS scrutiny. Our analysis is based on all construction documents and physical examination of the property, in addition to a thorough review of all invoices when possible. We provide full documentation utilizing engineering and cost estimating procedures (unless actual costs are available) recognized in IRS rulings and judicial decisions. Our thorough report provides the highest quality detail and completely supportable audit trail to protect your interests. Of course, should a tax authority ever challenge our Cost Segregation Study, we will be there to defend you. Contact Us to learn more about our Guarantee.
Rather than explaining the various complexities associated with performing Cost Segregation Studies in our own words, please see the IRS Cost Segregation Audit Techniques Guide (ATG). This was revised and updated by the IRS on January 20, 2006 and is extremely informative.
Our preference is to provide our clients and prospective clients with all the information they need to make informed decisions. What better way to make an informed decision on the tax strategies associated with a Cost Segregation Study than the IRS' own Cost Segregation Audit Techniques Guide (ATG), which is published for the benefit of IRS auditors? Reading the following sections of our website will give you ample detail regarding Cost Segregation Studies and will help make you a very informed consumer regarding the selection of your Detailed Engineering Approach Cost Segregation Study provider.
(If you want to know what other experts are saying about Cost Segregation, please visit our Cost Seg Resources page where you will find some great industry articles.)
If you would like more information on a CCC Detailed Engineering Approach Cost Segregation Study, then Contact us today for more information and a free estimate.