If you’re a commercial property owner or investor looking to increase your cash flow and lower your tax liability, CSG Strategic Tax Consultants (CSG) has got you covered. In fact, CSG literally wrote the book on cost segregation for Commerce Clearing House, the world’s largest provider of tax content, called, The Practical Guide to Cost Segregation.
Cost segregation is the practice of identifying assets and their costs, and classifying those assets for federal tax purposes. For commercial property owners/investors, cost segregation can provide tremendous tax benefits from accelerated depreciation deductions and simplified write-offs when an asset becomes obsolete, broken or destroyed.
Whether you are constructing a new building, expanding an existing one, purchasing real estate, rehabilitating an old facility or relocating with leasehold improvements, your property can generate much bigger tax savings than you realize. Substantial tax and cash flow savings can be achieved by taxpayers who properly classify their construction or acquisition costs between real and personal property.
It should be noted that CSG does not outsource any of the cost segregation work. We’ll conduct an engineering-based cost segregation study (CSS) to help you classify your assets in the right categories – personal property, land improvements, building components and land – to make it easy to track, and easy to deduct.
Properties with the best savings potential include, but are not limited to:
The CSS process is in-depth but non-intrusive. Our cost segregation specialists use an engineering-based approach, as specified by the IRS. On newly constructed properties, our engineers examine the architectural/engineering drawings for potential asset reclassification. A physical inspection is performed. Cost data including the contractor’s application for payments, change orders, owner incurred cost and disbursements are examined. Direct labor, material components and indirect costs are allocated based on analysis of drawings and specifications.
An existing property without the above documentation requires a different approach. The specialist must become familiar with the purpose and major functions of the property as well as the components of the building. A full analysis of the property is conducted, including inspec-tion, measurements and photographic documentation. This allows the specialist to reconstruct the property on paper, which includes listing all the components. The components are then valued using standard construction cost guides such as R S Means Building Construction Cost Data. Replacement costs are adjusted to account for property condition and to adjust to actual cost basis.
You now have a valuable opportunity, courtesy of the IRS, if you have constructed or purchased real estate in a prior year but did not take ad-vantage of a cost segregation study. This IRS gift horse allows you to retroactively deduct depreciation amounts that you were legally entitled to, but did not claim due to erroneous property classifications.
It is critical that professionals with the requisite knowledge of the tax laws and IRS guidelines conduct your CSS. Our on-staff team of CPAs and engineers have the expertise in construction and project design from both an engineering and tax perspective to perform a CSS on any commercial or residential property.
The report includes preparer information, certification, project background information, cost segregation methodology, limiting conditions, asset classifications, tax classifications and support, detailed take-off reports, and photographs.
Purchase Price: $2,292,555
% Personal Property Segregated: 27%
% Land Improvements Segregated: 10%
% Building: 63%
Accumulated Depreciation: $926,419
Section 481 Adjustment (missed depreciation): $531,964
Cash Savings on Adjustment: $182,553
How long does it take to complete a cost segregation study?
From the time we receive all of the appropriate documentation, a cost segregation study normally takes about 45 days.
What material is needed to complete a cost segregation study?
Ideally, we would like a full set of construction plans, final AIA application and certification for payment document or other cost information, current tax depreciation records, building cost budget information, change orders, direct or indirect costs paid by the owner not included in other documents, and other information depending upon the project.
What if I don’t have the necessary materials? Can a cost segregation study still be performed?
Yes, our engineering specialists can do an extensive site visit. They will measure and estimate costs using accepted techniques and pricing guides to identify all property costs and to determine which components qualify for shorter recovery life periods.
Can I use my own engineers and accountants?
From our experience, it is most beneficial and cost efficient for us to use specialists who are familiar with and specialize in cost segregation work. They understand the components that qualify and know how to document and substantiate their work. Consequently, their work also better withstands IRS scrutiny, and they are able to assist with any IRS challenges.
How much is a feasibility study?
A feasibility study (an estimated benefit calculation) is free.
Talk with a member of our team to learn more about how CSG can take the worry out of complicated tax laws and save you money.