Cost Segregation FAQs

What is cost segregation? Will a cost segregation study benefit me? Your cost segregation frequently asked questions are answered right here.

COST SEGREGATION FAQs

What is a cost segregation study?

The IRS requires an investment property to be depreciated (expensed/amortized) over either a 27.5 period for residential investment properties or 39-year period for commercial investment properties. An independent engineering report, permissible by the IRS breaks down the building into detailed components with their associated values. This report shows the IRS in detail the value of individual components within the building (concrete, masonry, steel, finishes, equipment, furnishings, plumbing, HVAC, electrical, land improvements, and other related components) that may exhaust over a much shorter period versus the 27.5 or 39 years standard depreciation. The study allows the property owner to reclassify and accelerate depreciation on, on average, 20% to 45% of the building versus over the 27.5 or 39-year class life. The IRS allows these studies for new buildings and any buildings owned less than 15 years with proper documentation. These reports can help with writing off a tremendous amount of the investment immediately on new properties or allow a property owner to go back up to 15 years to generate significant tax deductions for under amortizing their building.

When should a cost segregation study be done?

A cost segregation study is best done when a property is purchased, constructed, or remodeled after December 31, 1986 and if the owner will be paying property taxes for a few years.

How long does it take to complete a cost segregation study?

All properties and cases are different. However, a cost segregation study will typically take between 4 to 6 weeks to ensure a quality cost segregation study.

How much does a cost segregation study cost?

The estimate of the cost segregation is typically done after the property in question has been surveyed. The more important question is to ensure that your cost segregation specialist is qualified to conduct an engineered study.

What does a quality cost segregation study entail?

The IRS defines a quality cost segregation study as “a study that is both accurate and well-documented in the process of classifying, explaining the rationale, and substantiating the cost basis of each asset while reconciling total allocated costs to total actual costs.”

Can cost segregation studies be performed on buildings built or acquired in a prior year?

Yes. Property owners can prepare a cost segregation look-back study on their current property and re-calculate the depreciation for the previous tax years based on their reclassified asset costs.

 

For a complimentary assessment, please call Engineered Tax Services at

(800) 236-6519. You can also visit EngineeredTaxServices.com for more information.

Attention Commercial Property Owners: Get an Abandonment Study Done After Purchase!

If you are planning to get a cost segregation study done in the future, it’s wise to get an abandonment study done right after purchase. Why should you do this? Find out here.

ATTENTION COMMERCIAL PROPERTY OWNERS: GET AN ABANDONMENT STUDY DONE AFTER PURCHASE!

What is an Abandonment Study?

An abandonment study is a very detailed engineering analysis of building components. These studies are used to estimate individual component costs that are being retired or abandoned. Abandonment studies are usually performed when renovations or improvements are made during the normal ownership period of buildings, properties, or tenant improvements. According to the IRS, the study can be significant. Also, the data from the study could support insurance savings or claims if there are earned losses.

Why Is It Important to Get One Done Before Renovating Commercial Property?

It is important to have an abandonment study before renovating commercial property because it provides the details and documentation necessary to write off abandoned assets that were once buried in the cost of the building. A study can generate significant additional depreciation for the commercial property. Because depreciation is increased, substantial tax reduction can be affected. The study allows demolished assets to be deducted in the year earned.

What’s Documented in An Abandonment Study?

An abandonment study identifies the value of the demolished or renovated property.

Why Will a Detailed Abandonment Study Improve Your Overall Tax Savings with Your Cost Segregation Study?

The combination of this study with a cost segregation study can help to maximize the depreciation available on 100% of the building components. This leaves no mystery when uncovering qualifying abandonment assets.

Where Can You Find Details About Contracting an Abandonment Study?

Engineered Tax Services (ETS) is a leading specialty tax firm in the United States in the abandonment study and cost segregation areas. That’s because our team of tax experts and engineers are dedicated to cost segregation and abandonment studies – and have prepared reports for thousands of clients.

When You Work with ETS Tax Experts, You Get:

  • Over 100+ years of combined experience
  • Fully circular 230 compliant
  • Experience from Fortune 100 companies to our great small businesses
  • Broad service offerings to maximize client ROI
  • Completing over 200 engineering studies monthly
  • ETS employees – the top tax attorneys, CPAs, engineers, scientists, Congressmen, and Senators in the United States to deliver the best benefits in compliance with IRS standards

For a free consultation, please call (800) 236-6519. Also, you can learn more at EngineeredTaxServices.com.

Types of Cost Segregation Studies

Many different case scenarios can utilize cost segregation studies. Taxpayers who own properties, purchase existing properties, and construct new properties can all benefit from the tax laws that allow cost allocations. Typically, properties that are purchased, expanded, remodeled, or constructed after 1987 when the Investment Tax Credit was enacted will benefit from a cost segregation analysis.

TYPES OF COST SEGREGATION STUDIES

The highest yielding deductions and credits often come from properties valued at over $200,000 or that have large amounts of added features such as high-end finishes or components to operate. The type of clients who seek cost segregation studies often include:

  • Business owners of large manufacturing plants, hotels, restaurants, shopping centers or food facilities.
  • Individuals that own large portfolios of investment properties such as multi-family homes or apartment buildings.
  • Real estate companies that are often purchasing and selling multiple properties within the calendar year.
  • Franchise owners with similar properties such a golf courses or assisted living facilities.

Depending on the type of property, the percentage rate of the building’s cost that can be classified into shorter life assets. This will vary but is generally 15 to 45 percent. Properties with more land have higher benefits of tax due to the personal property that can be allocated.

Some examples include:

  • Grocery stores with a lot of machinery inside
  • Hospitals and medical clinics with labs and technical machinery
  • Industrial manufacturing facilities with advanced equipment;
  • Theme parks with new land and ride constructions in mind
  • Shopping centers with large parking areas and rainwater drainage systems
  • Apartment buildings in suburban areas with large area for tenants to park, swimming pools on property, tennis courts, and golf courses

Case Study Example:

Engineered Tax Services performed a cost segregation engineering review of building components and site improvements on 21 two-story buildings situated on 8 acres in Dallas, Texas. The cost segregation benefit included a reclassification of 27.5-year depreciation class life assets into 5 and 15-year class lives, resulting in a combined benefit of $1,835,135 on the purchase. This benefit clearly demonstrates why cost segregation has become a powerful tax tool for real estate clients as a result of the final tangible property regulations (T-Regs).

Generally, an engineered cost segregation study will be required for any large sum of costs being allocated for a depreciation deduction. Once the property owner decides their current or future property is in need of a study, a specialist will generally provide an estimate from the proposal. If the property has very specialized assets or building components in place, an outside consultant may be needed for their expertise in that specific area.

For a complimentary consultation, please call (800) 236-6519. You can also learn more at EngineeredTaxServices.com.

Cost Segregation Study: Can You Benefit?

The Cost Segregation Procedure

Cost Segregation: The Different Approaches to Cost Estimation

R&D Tax Credit for Design and Manufacturing Companies

Have you heard about the Bipartisan R&D Tax Credit Bill? Well, if you are in the design or manufacturing industry, you’ll want to find out. That’s because this bill – also known as the bipartisan Invent and Manufacture in America bill – allows for enhanced tax credits for companies that conduct research and development in the United States.

R&D TAX CREDIT FOR DESIGN AND MANUFACTURING COMPANIES

This bill enhances the value of the R&D tax credit by up to 25 percent. That goes for companies that perform the majority of their manufacturing in the U.S. According to a report from Wolters Kluwer, the legislation increases cash flow for start-ups involved in R&D intensive activities. Companies benefit because the bill reduces past, current, and future tax liabilities. This brings huge tax savings.

The government created this bill because the goal is to remain the world’s leading economy in the 21st century. In order to do that, we must continue to expand investments in research and development. That means that not only should products be invented in the U.S., but also be manufactured here as well.

“If we have strong, growing, manufacturing companies, we can create jobs and drive foreign investment to the U.S.,” said tax reform expert and CEO of Engineered Tax Services, Julio Gonzalez. He also added that it creates economic growth – a major benefit for our country.

New products, technologies, and lower prices created through R&D, help to raise wages, create more cash flow, and create more jobs.

“As a tax expert who believes in the American worker and the R&D tax credit, I fully support how this bill benefits the workers of our country. We lose competitive advantage When American innovations are manufactured abroad. This bill will strengthen innovation here and also will make us more globally competitive. If technologies and goods are invented and manufactured here, it promotes further advances for business owners and manufacturers,” added Mr. Gonzalez.

For an R&D consultation, please contact Engineered Tax Services at (800) 236-6519. You can also learn more at EngineeredTaxServices.lamp2.i4.net