Cost Segregation

What is a cost segregation study?

It is a depreciation strategy where the components of a building are segregated into various depreciable life categories to accelerate depreciation expense.

Typically, a building is depreciated over 27.5 years for residential property or 39 years for non-residential properties. But when the building is broken into its various components rather than 100% of the costs being assigned to the building, some components of the building can be depreciated into shorter time spans such as 5-year, 7- year, or 15-year tax lives as opposed to 27.5-year or 39-year tax lives. This allows businesses to take more tax-deductible depreciation expense earlier.

These are the segregated components of a building:

• Building Structure
• Land Improvements
• HVAC Systems
• Electrical System
• Plumbing System
• Fire Protection System
• Security System
• Gas Distribution System
• Escalators
• Elevators

Why would you want a cost segregation study?

1. More tax-deductible depreciation expenses
2. IRS procedures allow you to go back and claim missed depreciation on assets acquired as far back as 1987 without amending prior tax returns.
3. Lower taxable income
4. More real cashflow stays in your business to continue building wealth.
5. Time value of money- Net Present Value of the deferred income tax liability. NPV is roughly 5% of the total building cost (Ex: $250,000 rental property can yield an after-tax NPV of $12,500)

How can we help?

Our firm’s niche market is real estate, we serve various markets with accounting and real estate specific tax strategies. The markets we serve:

• Commercial Real Estate Investors
• Fix and Flippers
• Land Developers
• Long Term Rentals
• Mortgage Lenders
• Property Managers
• Real Estate Agents
• Real Estate Brokerages
• Real Estate Builders
• Short Term Rentals (Airbnb, VRBO)
• Short-Term Rental Arbitrage
• Wholesalers

Our cost segregation studies are best suited for:

1. Buildings acquired, improved, remodeled, or newly constructed, in the last 15 years.
2. Residential properties with more than $150,000 of cost basis and have less than 6 units
3. Properties with cost basis of $750,000 or more
4. Owner has taxable income
5. Property will be held for more than 5 years.
6. REITs interested in controlling dividend distributions to shareholders.

Poor candidates for cost segregation studies:

1. Non-Profits, Hospitals, Universities
2. REITs (unless they are interested in controlling dividends that must be distributed)
3. Cooperatives
4. Short term real estate holders (unless they plan on doing a 1031 exchange)

Try before you buy - Preliminary Review

1. Request a free analysis report of the property
2. If you like the tax savings, purchase the complete cost segregation report

Purchase Report

1. We provide you with a link to our site to enter data about the property.
2. Within 72 hours we send you a detailed schedule of the property’s component costs organized by tax category (used to complete your tax return)
3. Report shows amount of tax deductions (Years 1-5), amount of increased cash flow (Years 1-5), and Net Present Value (after tax)
4. We stand by our numbers and will defend you against an audit of our report.

Cost of Service:

• 1-9 Reports: $1,600 each
• 10-19 Reports: $1,400 each
• 20-49 Reports: $1,350 each
• 50+ Reports: $1,250 each

Note: Cost of services are based on a property with a basis value of $650,000 and under (exclusive of land value). For properties with a basis above $650,000, we will have a conversation with you to learn about the particulars of the property.

Contact us today at 407-630-4684 or request a consultation for your no obligation preliminary review!