Commercial Property Benefit


" 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 money”.

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.
OUR PROCESS
  • 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 case law.

  • 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!
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