Are you considering having a cost segregation study conducted for one or more of your properties? If you’re already planning on pursuing cost segregation as a tax-saving strategy, adding an energy evaluation is likely to be well worth your time and money
Cost segregation studies and energy evaluations go hand-in-hand to reduce real estate tax liability and keep more money in investors pockets. Having one conducted without the other simply does not make financial sense. With this in mind, here are three reasons why you should include an energy evaluation with your cost segregation study:
Cost segregation studies and energy evaluations can be interrelated.
Many of the components examined during cost segregation studies are also relevant to energy evaluations.
Cost segregation studies and energy evaluations can work in tandem to accelerate depreciation. While cost segregation aims to accelerate the depreciation of everything falling outside of the 39-year property category, energy tax incentives can be used to accelerate related energy-efficiency building components that are considered part of 39-year property.
Furthermore, when you commission a cost segregation study, you’ll be asked to provide a substantial amount of information about the property in question. The engineer performing your study will need a solid base of background information to work from, which will require you to compile quite a bit of documentation.
The same is true for energy evaluations. If you ever decide to pursue the 45L tax credit or 179D tax deduction, you’ll probably need to provide much of same information (such as construction drawings) you already shared for your cost segregation study. Why not make things easy on yourself by sending all the details over at once?
Having both studies done at the same time is cost-effective.
It’s more economical to have a cost segregation study and an energy evaluation done at once than it is to commission them each separately.
If you’re already paying a company to conduct a cost segregation study, adding on an energy evaluation may not require a significant additional investment. Because the engineers you hire will need to collect a lot of the same information and evaluate many of the same building components for each study, it’s easiest for them to do both at once.
Not only does having a cost segregation study and energy evaluation conducted at the same time cost much less than it would to commission each one separately, but it’s also more efficient. If you order each study separately, you’ll have to go through every project phase all over again. This both costs more money and takes up more time. If you want to get back your results as quickly as possible, including an energy evaluation with your cost segregation study is a smart idea.
Without an energy evaluation, you might be leaving money on the table.
If you neglect an energy evaluation, you could miss out on significant tax savings.
Your building might already qualify for valuable energy tax credits or deductions. Even if you wouldn’t consider the property to be especially energy efficient, it may have been built with materials that make it eligible for tax incentives. Building codes get stricter every year, which means that many newer properties qualify as energy efficient by default. Furthermore, developers will often push energy efficiency as a way to add value for investors.
Cost segregation is a powerful tool for saving money on taxes, but it doesn’t have to be the only tool you use. Adding on an energy evaluation will enable you to claim additional tax incentives that you may not otherwise have been aware of. To avoid leaving money on the table, make sure you investigate every possibility.
Conclusion
It’s almost always worth it to add an energy evaluation to your cost segregation study. The significant potential benefits more than outweigh the marginally increased costs. In short, it doesn’t make good business sense to have one done without the other.
Engineered Tax Services is the nation’s premier tax firm. We began as a cost segregation company over 20 years ago and have done our fair share of cost segregation studies. We’ve also conducted numerous energy evaluations for all types of residential and commercial properties. Our extensive experience with both of these services makes us the ideal partner for those wanting to take advantage of lucrative tax incentives.
