What is a Cost Segregation Study?

Cost segregation or Modified Accelerated Cost Recovery System (MACRS) as the IRS refers to it, is the process of identifying and reclassifying the various building components of your commercial property, leasehold improvements, and rental houses to shorter depreciation periods, thus reducing current tax obligations. This recent change in the tax code came about from a Supreme Court decision against the IRS, and even now, less than five percent of qualifying property owners take advantage of this "loophole."

Typically, 100% of the cost of commercial real estate is depreciated over 39.5 years. A cost segregation study identifies components of a property or leasehold improvement that can be depreciated over a shorter period. By doing this, your benefits of depreciation are accelerated, reducing your overall tax burden.

What components of my property can be reclassified?

Examples of components that can often be reclassified are the building's non-structural elements, like carpet, dedicated electrical and plumbing, decorative lighting, security systems, landscaping, curbs, sidewalks, and signage. Also indirect construction costs, like architect and engineering fees and construction permits can be reclassified.

How much will my Cost Segregation Study cost?

The fee for our studies can be as little as $499, depending upon the type of property and the building and improvement costs. Our fee increases slightly as the tax-basis of the subject property increases, however, you can be assured you will save money on your study with us — we guarantee to beat any competitor's price by at least ten percent. We will provide you a firm no-obligation quote prior to engagement. Simply complete and submit the Property Information Form and we'll let you know, typically within one business day or less.

Why are your studies significantly less expensive?

We have streamlined the process of providing you a cost segregation study — we prepare your report using proprietary computer modeling and IRS-accepted "rule of thumb" guidelines, thus saving the cost for on-site inspections. We also rely on you to provide us the necessary documents and photographs so that we can more accurately produce your study. And we do not utilize a traditional sales force — sales commissions alone can sometimes comprise as much as half the cost of a study performed by other companies.

What do you mean by "forensic" and "desktop?"

Cost segregation companies that refer to their studies as "forensic" or "on-site" means they will have an architect or engineer (or in more dubious cases, an appraiser or real estate professional) actually come to visit and personally inspect your property. While these types of studies are more accurate and generally provide greater tax benefits, they will also cost thousands of dollars more. If your property is very unique, complex, or large, you should consider this type of study as the additional benefits will likely outweigh the additional costs. For the majority of commercial properties, however, and especially those with a tax-basis of less than $1,000,000, the money you'll save with Tax Saving Studies' "desktop" report will be a smart and sensible investment.

What type of property is eligible?

Commercial real estate property that is eligible includes buildings that have been purchased, constructed, expanded, or remodeled since 1987. This also includes rental houses and leasehold/ tenant improvements of $50,000 or more.

How much will I save on taxes?

A typical study provides tax savings from five to ten percent of the building's original tax-basis, but it can be a lot more. The amount you'll save depends on several factors, but you WILL save!

How long does a Cost Segregation Study take?

A forensic study can sometimes take several months to complete. With Tax Saving Studies, you can usually have your study in hand within two to four DAYS of providing us the necessary documents and photographs.

What is required of me?

You need to provide us with as much of the original documentation as you can, along with your most recent Tax Asset Detail (also referred to as your depreciation schedule), and tax return. Your property documentation could include construction plans, building cost budget information, final AIA application, a general ledger for construction costs, change orders, etc. You will also need to take several (many dozen to more than a hundred) digital photographs of your property (we will provide you guidelines for this once you are engaged). A typical smart phone camera is usually sufficient. For most properties, this will require less than an hour of your time.

Can't my CPA do a study for me?

Unless your CPA "moonlights" as an architect, contractor, or engineer, he is not qualified according to the IRS guidelines. Even in the unlikely event your CPA offers to engage you in a cost segregation study using the "rule of thumb" method for less than our fee, it's highly unlikely that he will have the resources and experience we have. The result will undoubtedly be less accurate, more likely subject to an audit, and probably leave more of your money in the coffers of the IRS.

Will a study increase the chance of an audit?

No, a properly performed study will not. IRS guidelines stipulate that this change in accounting method by itself is not grounds for an audit. In fact, it reduces your chances because it's the preferred method, and doing so places you in greater compliance. We do, however, recommend against filing amended returns as this does increase the likelihood of an audit.

What other services do you provide?

At Tax Saving Studies we specialize in computer-modeled cost segregation studies. We will also provide you with a completed IRS Form 3115, for an optional additional fee of $500. This form is required by the IRS when making this change in accounting.