Cost Segregation

What is Cost Segregation?

A cost segregation study is a federal income tax tool that increases your near-term cash flow in the form of a deferral. Whether newly constructed, purchased or renovated, the components of your building may be properly classified through a cost segregation study into shorter recovery periods for computing depreciation.

The result is that you can accelerate the return on capital from your property investment. The study carves out certain qualifying building assets into 5-, 7,  and 15-year lives that are normally buried in 39 or 27.5-year categories.

The cost segregation specialists at Engineered Tax Services will help you to uncover the most possible potential tax savings.

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Next-Generation Cost Segregation Services

Through our next-generation cost segregation services, we work to uncover potential tax savings and increase cash flow through the reclassification and depreciation of property. Engineered Tax Services provides a Detailed Engineering review as part of our reporting process and works seamlessly with the IRS and your CPA firm for minimal disruption to your business.

Cost Segregation Studies During COVID-19

The majority of Engineered Tax Service cost segregation services are conducted onsite. The COVID-19 pandemic, however, calls for a safe alternative—one that provides you with the same ability to reduce tax liabilities and increase cash flow.

Tele-Engineering – a virtual approach to cost segregation – offers the same high level of detail and support as in-person visits, while eliminating costs and social safety issues.

Engineered Tax Services provides the following cost segregation services:

Reclassification Percentages

Property Type

  • Apartment Building
  • Assisted Living Facility
  • Auto-Car Dealership
  • Bank
  • Car Washes / Gas Stations
  • Conference Center
  • Fitness Center
  • Golf Course
  • Grocery Store
  • Hospital
  • Hotels
  • Leasehold Improvements
  • Manufacturing
  • Medical Office/Clinic
  • Mixed Use
  • Mobile Home Parks
  • Office Building
  • Research Facility
  • Resort
  • Restaurant
  • Retail Strip Mall
  • Self Storage Facilities
  • Theme Park
  • Vacation Rentals
  • Warehouse
  • Winery

Reclassification %

  • 20-40%
  • 22-45%
  • 29-35%
  • 30-45%
  • 75-100%
  • 25-35%
  • 22-45%
  • 28-60%
  • 20-45%
  • 25-45%
  • 28-40%
  • 20-40%
  • 20-80%
  • 20-40%
  • 22-35%
  • 20-40%
  • 60-95% 
  • 20-30%
  • 22-45%
  • 25-45%
  • 20-80%
  • 18-40%
  • 30-68% 
  • 25-45%
  • 20-30%
  • 18-25%

The Different Approaches Our Cost Segregation Specialists Take To Cost Estimation

At Engineered Tax Services, a qualified engineer always performs a site visit for your cost segregation study. This helps to gather all details for cost estimation, as well as avoid an IRS audit. However, there are different types of cost estimation depending on what is right for your property specifically.

Engineered Documentation Approaches

The cost segregation specialists take the data compiled to produce a comprehensive report for the cost segregation study. To date, the IRS does not have a standard or required procedure in compiling a cost segregation study. The more detailed and accurate a study is, the faster the IRS service provider can review it so that the taxpayer may receive his or her deductions. The IRS guide on cost segregation numerates certain methodologies that are often utilized by specialists including the detailed cost approach, the detailed cost estimate approach, the survey approach, the residual estimation approach, and the sampling approach.

The detailed cost approach compiles costs from construction and accounting records to build a report. Since this method relies on true documentation and little estimates, it is typically the most time consuming but the accurate method.

The detailed cost estimate approach is generally used for new construction. Much like the detailed cost approach, the detailed cost estimate approach will also need a compiled list of documents. However, when a record is not found the specialist will do an estimate of the cost of the component to report. In order to find these estimates, the specialist must find the cost from a reliable source and have the source referenced in the study. For this reason, it is important that the client provides all requested invoices in order to not have to depend on an estimate of a component.

For the survey approach, the specialist performs a site inspection and has all the components of the property listed. Then the cost segregation specialist will reach out to the contractor or subcontractors in written form and ask for the prices of each item. Depending on how long ago the work was done, this will dictate how reliable the data of costs will be for each component.

The residual estimation approach is a method that determines the cost of short-lived assets, such as on a 5 or 7-year property. Then these costs are added together and then subtracted from the total project cost, while the remaining price is assigned to the building itself or other long-lived assets.

The sampling approach helps costs and resources of the study to be greatly reduced. However, sometimes the accuracy of this approach is more likely to be flawed. This method is applied by performing a cost segregation study on a sample of a large portfolio of properties. Based on those results, a standard model is developed for each facility type. The pricess are then taken from the model and repositioned on a percentage basis. If you are a firm with many properties, this approach may work well for you.

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