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What is Cost Segregation? Presentation by Cost Segregation Services, Inc.
What is Cost Segregation?
Presentation by Cost Segregation Services, Inc.
Cost Segregation
Cost segregation is an established taxapplication of using an engineering studyto identify various components of acommercial property that qualify foraccelerated depreciation.
History
• Tax Reform Act 1986• No longer allowed component depreciation of• Sec. 1250 property.• IRS position was that all component depreciation was
disallowed including Sec. 1245 property.
• 1993 Budget Reconciliation Act • All non-residential commercial property, excluding
warehouse/manufacturing property, depreciated over 39 year straight line schedule.
Landmark Court Case
Hospital Corporation of America (HCA) vs. IRS Commissioner, 109 TC 21 (1997).
Accelerated Depreciation
• Carpet, wall coverings, window treatments, cabinets/millwork, interior painting, interior partitions, glazed store fronts.
• Land improvements: Site preparation, site drainage, curbs and gutters, parking lots and stripping, sidewalks, landscaping, irrigation systems, monument signs, flag poles, pole lighting, dumpster enclosures.
Re-classified Assets
Benefits of Cost Segregation
• Uncovers the hidden assets in commercial real estate properties and allows for the accelerated depreciation of those items.• Accelerated depreciation immediately reduces (and in some cases eliminates) income tax liability.• Increases positive cash flow.• Improved ROI in early years of ownership.• Recover all previous years missed depreciation in current tax year.
Who Qualifies
• Property built, renovated or acquired since 1987.
• Any for profit entity, owning commercial property with a value of at least $500,000.00 (excluding land cost) and that pays taxes.
The Process
If you have a client who may be a candidate for cost
segregation we can supply you and your client the following at no charge:
• Determination of candidacy• Estimate of tax savings• Flat fee pricing as recommended by the IRS
Cost Segregation Application
• Study performed using construction documents, blueprints and contractor applications for payment if available, or from an appraisal done at time of purchase.
• Study takes from 4-6 weeks to complete.• Site visit to examine property and take extensive
photographs of property.
AICPA
When it comes to real estate transactions, the jewel of cost segregation is that it yields enhanced depreciation deductions. However, the major advantage of cost segregation is not necessarily that it will produce more depreciation deductions. Instead, due to the time value of money, the advantage of these front-loaded deductions will be quantifiably greater than had the deductions been spread over longer periods of time using slower depreciation methods.
Journal of Accountancy Aug. 2004
IRS and Methodology
The IRS has addressed this issue but only briefly, i.e., RevenueRuling 73-410, 1973-2 C.B. 53, Private Letter Ruling (PLR)7941002 June 25, 1979), Chief Counsel Advice Memorandum199921045 (April 1, 1999). These documents all emphasize thatthe determination of § 1245 property is factually intensive and mustbe supported by corroborating evidence. In addition, anunderlying assumption is that the study is performed by "qualified“individuals or firms, such as those employing "…personnelcompetent in design, construction, auditing, and estimatingprocedures relating to building construction" (PLR 7941002).
Partner With A Professional
• Industry leader in the under $10,000,000 market.• CSSI established in 2001. Our sole business is cost segregation.• Over 3000 studies completed without an IRS audit of our
clients.• Our experience performing cost analysis for business and
industry includes experience with Arthur Anderson, KPMG, Ernst & Young and Gemini Consulting. We have combined over 80 years of experience in construction management and project management.
QUESTIONS?
Do you have any questions?
Thank you for your time.
Contact Information
Phillip HarpClient ServiceCost Segregation Services, Inc.Direct Line: 479.263.1390Toll Free: [email protected]
