" Cost Segregation Studies are a lucrative tax strategy that should be considered in almost every real estate purchase."
~ US Treasury Department
What is it?A
tax strategy approved by the IRS in 1997 to reclassify specific real
property assets that usually receive a depreciation life of 39 years
(commercial real property) or 27.5 (commercial residential) into
“tangible personal property” that is treated as five (5) year property
or land improvements which are treated as fifteen (15) year property
for depreciation purposes. Due to improved treatment, portions of the
electrical, plumbing, mechanical systems, and site improvements of a
building along with hundreds of other components can be allocated into
shorter lives translating into immediate cash flow.
The Value of Money:This
effectively increases taxpayer’s depreciation expense in today’s
dollars. By recouping up to 40% of the building cost over the first 5
years as opposed to depreciating it over 39 years, translates into
significant tax savings and taps into the concept of the “time value of
How much cash are we talking about? On
average, our Cost Segregation Study offers approx. $150,000 in
additional depreciation per $1 million dollars in purchase or
construction cost over the normal 39 year straight line method.
History of Cost Segregation:Over
300 rulings, letters, and IRS Memoranda have provided documentation and
significant case law for the support of Cost Segregation Studies:
Hospital Corporation of America vs. The Commissioner is one of the
landmark decisions which gave support to the way we
review and analyze your property/properties to determine the tangible
personal property within your building which may qualify for
depreciation lives of 5, 7, or 15 years rather than 39 years (if
non-residential real property) or 27.5 years (if residential real
property). Even if you are presently depreciating certain property in
an accelerated schedule - your CPA may still be leaving your money on
the table. Only if you have secured specialized experts (per the IRS)
will all allowable property be depreciated on an accelerated basis.
Who / What Qualifies?
Any commercial property owner may qualify if he/she has a federal tax liability.
Owns a building (Land Excluded) $700,000 and above.
Plans on holding building for at least 2 years.
Plans on conduction a demolition or major renovation project.
Has owned the building after 1987.
Cost Savings Estimate Report
ICPS will provide a no cost up front Cost Savings Estimate to determine the cash flow and net present value (NPV) benefits.
Initial consultation to make sure a study will be beneficial:Certainly,
the initial benefits of a Cost Segregation Study may be impacted by
corporate structures, individual tax situations, subsequent disposition
of a property, a 1031 exchange, recapture implications, passive
activity limitations, REITS and other subsequent events that a real
estate investor may encounter post Cost Segregation Study.
WHO YOU HIRE CAN MAKE ALL THE DIFFERENCE:
Frequently Cost Segregation competitors “estimate” or just “assume”
a percentage of the basis to reclassify. This as a practice is all too
often employed by providers - unfortunately at the expense of the
taxpayer/owner. This approach not only leaves many thousands (often
hundreds of thousands of dollars) unavailable to the owner/taxpayer -
but more importantly this practice puts the client at risk. This
approach often has a modest fee attached - the provider assuming that
the owner/taxpayer is unsophisticated and will compromise on benefits
as well as assume the risk with the IRS in case of an audit.
ICPS understands that Cost Segregation Reports are a serious tax
matter that involves IRS scrutiny. We will not take the approach of
short term gain to risk long term reputation and has gone through great
lengths to use the latest tools, methods and procedures to deliver the
most detailed and comprehensive reports in the industry, according to
strict IRS rulings and requirements.
We are one of the few firms in the country to perform the RS Means
Tolerance Test. This is a comparison of the constructed cost of the
building compared to the national average in terms of square foot, cost
and percentage of assets within the total cost of electrical,
mechanical and personal property elements. If we find significant
differences such as 15% electrical versus the national average of 10%
for like kind building we will then document the difference to the IRS.
Most firms simply guess. Although this takes us a considerable amount
of time, we can be much more accurate which leads to greater audit
defense and a lot of the time, a larger cash benefit to the client.
Provide a no cost property review or feasibility report to determine the cash flow benefits.
Evaluation of current tax status and future business plans with CPA to determine if a study will be a benefit.
Review of the project’s/facility’s construction cost by component or systems.
On site visit of the facility/project to document
the systems and components to determine how they’re utilized. Site
photos are always taken.
A detailed engineering review of assets including
special purpose mechanical, electrical and plumbing, decorative
finishes, site improvements and special purpose construction. As well
as, Blueprints, AIA documents, and change orders.
Classification of each building component into the
appropriate tax life as prescribed by the IRS guidelines and relative
Finally, we will deliver a 110-page written report
with an executive summary, asset detail supporting the reclassified
cost, specific case law and revenue rulings, depreciation schedules and
all of the necessary tax forms.
If we can't save your company money, you pay us nothing!