Cost Segregation and Depreciation Methods to Minimize Taxes
What is Cost Segregation?
An approved strategy per the IRS Audit Technique Guideline to reclassify specific assets from “Real Property” into “Tangible Personal Property”.
The result of moving depreciable assets from 39 year (commercial property) or 27 ½ (commercial residential) years into assets that qualify for 5, (occasionally 7 or 10 year) and 15 year tax lives is accelerated or far more rapid depreciation – or measurable and significant tax savings.
The results: the immediate addition of tens to hundreds of thousands of dollars to your bottom line.
While reclassification of assets is not a new strategy, it is not widely understood or utilized. To maximize your savings, you need specialists who understand the ins-and-outs of the IRS preferred methodology for creating a Cost Segregation Study or Analysis. CRG’s network of expert engineers, architects and specialized accounting personnel whose primary mission is to apply the laws, procedures and revenue rulings of Cost Segregation analyses to maximize value for our clients.
What may qualify for Cost Segregation?
Virtually all commercial properties including apartment buildings, leased facilities.
Status of properties?
In design, under construction, newly acquired or owned since 1987.
Additionally, any property that has received a major renovation/remodel/rehab may also qualify.
Status of owner/taxpayer?
Must have a tax liability or anticipating a tax liability.
“Catch up” since 1987?
The IRS allows a commercial property owner to go back in time (to 1987) and “catch up” on all missed depreciation (practical application is 1992). This is done via a Change in Accounting Method IRS Form 3115. No tax return amendment is necessary. (the economics of the equation is really about 1992 or 1993).
Feasibility/Benefit Analysis – What is it?
A pro bono document evaluating the property by date of service, usage and tax basis (purchase or construction cost less land). This is a tool for the taxpayer and his/her consultants to evaluate the benefits of a Cost Segregation Study. The Benefit Analysis identifies the estimated percentage of reclassification of assets, the first year (immediate) tax saving benefit, the five year tax saving benefits, and the Net Present Value of those savings.
What’s needed for review to provide Benefit Analysis?
- Under Construction: construction budget and percentages of building usage
- Newly Acquired: Settlement Statement with land cost allocation
- Ownership over one year (tax year): depreciation schedule(s)
Read more on the Cost Segregation Process.
Engineering Services – Design/Construction/Rehab Review?
CRG will review all plans, specifications, remodel/rehab plans looking for assets that may be substituted with shorter lives instead of 39 year life and 27 ½ year assets. Additionally, CRG looks to insure that how assets are affixed preserves them as “Tangible Personal Property” instead of long lived “Real Property”.
CRG understands the importance and purpose of the IRS rules surrounding cost segregation and we have developed the most comprehensive and thorough Cost Segregation Reports in the industry, meeting and exceeding IRS standards while delivering concise, actionable information to clients. We stand behind each client’s Cost Segregation analysis and will defend it in the event of audit. Fact: With over 9,000 reports submitted, not one has been reversed, attesting to our sound methodologies, attention to detail and high standards.
While there are, of course, specific conditions within a company or after the conclusion of a study that may impact your company’s long-term savings, CRG will apply its proven expertise and best practices to help reduce your organization’s tax burden.
Unlike many other providers “estimate” or “assume” the percentage of the basis of your reclassification, CRG steps up to perform the highly detailed review that we believe is indispensable in providing our clients with the highest level of tax savings to which they are entitled. We complete our reports with verified and well-measured data that is gathered by professionals who know from experience what is required in a successful submission to the IRS.
CRG clients frequently use money from their cost segregation to offset costs of energy projects. In fact, cost seg is but one of an array of capital discovery strategies CRG uses to help clients cost effectively achieve high levels of energy security.