Frequently Asked Questions
How do I know I will benefit from a Cost Segregation Study?
In general, people who would benefit from a Cost Segregation Study include:
- Commercial real estate owner who would benefit from increased cash flow through additional depreciation deductions.
- Owner of a building that is valued at $1 million or more excluding land.
- Owner of a building who intends to keep property for 5 years or more.
- Owner of a newly constructed building.
- Owner of newly purchased building.
- Owner or leaseholder of building with significant renovations or expansions.
We will do a no cost Benefit Analysis for your building to determine what benefit you may receive from performing a cost segregation study. Based on the results, we interface directly with your CPA or financial advisor to best determine if this is a good strategy for you.
When is the best time to have a Cost Segregation Study (CSS) performed?
Whether it is an existing building or new construction, the optimal time to implement a cost segregation study is the year in which it is placed into service by the current owner. When an existing building changes ownership, a new depreciation schedule is created (39 or 27.5 years). Accelerating the depreciation allows the owner to pay less in taxes at the beginning of the building tax life cycle. This increased cash flow allows for other investment opportunities.
Can my CPA perform this study for me?
Most CPA firms do not do Cost Segregation Studies in house as they do not have individuals with construction engineering backgrounds on staff. According to IRS Cost Segregation Audit Techniques Guide (CSATG)-Chapter 4. Principal Elements of a Quality Cost Segregation Report Item 1 of 13 states:
1. Preparation By An Individual With Expertise And Experience
The preparation of cost segregation studies requires knowledge of both the construction process and the tax law involving property classifications for depreciation purposes…
...In general, a study by a construction Engineer is more reliable than one conducted by someone with no engineering or construction background. However, the possession of specific construction knowledge is not the only criterion. Experience in cost estimating and allocation, as well as knowledge of the applicable tax law are also important criteria.
A Detailed Engineering Cost Segregation Study is the most detailed approach to Cost Segregation per the IRS (CSATG) Chapter3.
Are all Cost Segregation Studies prepared the same way?
No. There are various approaches to cost segregation as outlined in the IRS (CASTG) Chapter 3. The most accurate approach is a Detailed Engineering Approach. This approach provides detailed component classification and value for all building components including ones that are not reclassified from the real property schedule.
Will a Cost Segregation Study increase my chances of being audited?
No. A Cost Segregation Study is not a red flag for the IRS. The Study provides the necessary documentation in the event of an audit.