Cost Segregation Services Inc.
A nationwide engineering
firm that only focuses on
Cost Segregation Studies.
Local offices throughout the United States.
We will do a free cost analysis to see if cost segregation is a benefit to you, and if not, we will walk away at no cost to you! That's how confident we are that it will put money in your bottom line today with little effort from you! This is truly your money to utilize now; you just need to know how to properly account for it.
Cost Segregation is in the news. Make sure you take a look at some recent national magazine articles.
Download our brochure and find out about the great benefits of Cost Segregation and how it can help you save money.
10 MYTHS ABOUT COST SEGREGATION STUDIES
Myth: My accountant probably did one.
Unless it was done subsequent to May 13, 1996, when the tax laws changed, then you are probably depreciating your assets incorrectly. In the case of purchased buildings, if you do not have a specific appraiser's report or a professional who has construction cost estimating expertise (using national industry costing manuals such as RS Means™ or Marshall and Swift™, which break out the various building components), then you definitely did not have a cost segregation study performed on the building.
Myth: A cost segregation study won't save any money.
This is true only if the entity or pass-through entity is losing money and has no ability to either carry back or carry forward the losses generated. Otherwise, the savings generally range from 35% to 46%* of the additional depreciation generated from the study. For example, if a cost segregation study results in additional depreciation of $ 1,000,000, then a taxpayer in the 46% tax bracket would save $ 460,000 in federal and New York state taxes over 4 years.
Myth: Our chances of being audited will increase.
Not according to the IRS. You are filing an automatic change in accounting method, which the IRS has pre-approved assuming the form is filed correctly. In addition, the IRS has issued a publication to follow in order to properly record the changes in depreciable lives. Keep in mind that you are going from an incorrect method to a correct method, and the changes made are generally black-and-white issues within the tax code.
Myth: There is no support if the IRS does perform an audit.
There are more than 75 IRS rulings, procedures, and court cases that allow for cost segregation studies. The report we provide details every change with applicable support and documentation. Our firm has spent more than 1,000 hours on researching cost segregation studies and performed hundreds of such studies.
Myth: My CPA has segregated percentages of construction costs based on invoices or contractors application for payment, so our company is already benefiting.
Without the contractor/engineer expertise coupled with the tax law guidance, there will likely be valuable tax benefits left on the table. More importantly, this methodology will not withstand IRS scrutiny.
Myth: We will get the deduction in the future anyway.
Yes this is true, but a cost segregation study in effect gives you an interest-free loan from the government for the first 15 years, which you will then repay interest-free over the remaining 25 years. Who do you want holding your money? There are also advantages to doing a study if the building is going to be sold or upon the death of a building owner.
Myth: We are in an alternative minimum tax (AMT) situation, and/or the cost segregation study will put us in one.
Congratulations! You are probably flush with cash. If this does occur, the savings will be at the 28% federal tax rate and not the 35% to 39% tax rate. Of course the amounts are large enough so it shouldn't matter. In addition, the AMT taxes can be used against regular taxes in future years.
Myth: We don't have any assets to reclassify.
Generally, 20% to 55% of building costs can be reclassified to shorter depreciable lives.
Myth: A cost segregation study will complicate estate planning.
Yes it might, but the rewards of performing a study have great financial benefits if the owner of the building dies before the building is fully depreciated. Due to the step-up in basis rules, it is one of the rare times a taxpayer can "have his cake and eat it too." If done properly, a cost segregation study is an estate planning home run.
Myth: There is no negative impact to not performing a cost segregation study.
This is an incorrect assumption. IRS regulations require that taxpayers compute depreciation on that which is allowed or allowable. Therefore, if you improperly depreciate a 7-year asset over 39 years, the IRS could disallow the depreciation on the asset beginning in year 8. In addition, if the building is sold, the IRS could increase the gain by reducing the base in the building by the depreciation that should have been taken in prior years, but was not.
*Assumes federal tax rates between 28% and 39% (maximum marginal rate) and approximately 7% New York state taxes.
FREQUENTLY ASKED QUESTIONS
What is a CSSI Study?
A CSSI Study is an engineering analysis that reclassifies or segregates real estate components and improvements between real and personal property in order to accelerate the depreciation periods from 39 or 27.5 years to 15, 7 or 5 years.
Why haven't I heard of cost segregation?
Cost segregation was first applied and performed by major accounting firms with in-house cost seg departments on the largest properties of their most significant clients. One study originally cost upwards of $100,000.
Does my property qualify?
Yes, if you:
1) Purchased, constructed or remodeled property after Jan 1, 1986, and
2) Anticipate holding the property for at least a few years.
Can I benefit from a CSSI Study?
Yes. Let us provide the necessary data to your advisors to determine potential tax benefits.
When should a study be done?
It is best to have a study completed for the year the building or improvements are placed in service. However, IRS Revenue Procedures allow taxpayers to "catch-up" on the depreciation that was not claimed from the first day the property was placed in service without amending prior year's tax returns. Furthermore, the IRS recently allowed for the "catch-up" period all in the first year rather than over four years when the Revenue Procedure 99-49 was first introduced. A cost segregation study can be performed on any property constructed, acquired or remodeled since Jan 1. 1986.