What is Cost Segregation?
Cost Segregation is an IRS-approved methodology in which certain assets previously depreciated over 27 ½ or 39-years can be identified, reclassified and depreciated over 5, 7 or 15-years, enabling a commercial real estate owner to depreciate a new or existing building in the shortest time permissible under current Federal tax laws.
Using the engineering methodology, our cost segregation studies provide a thorough analysis of a building’s components with the goal of segregating personal property from real property. Upon completion of the study, the owner or accountant will have the proper documentation to capture or recoup substantial cash flow benefits by depreciating the qualified assets on a shorter life than the building.
Cost segregation studies can be performed on almost any building type, in any industry.
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New buildings currently under construction or built by the current owner anytime after 1986.
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Purchase of existing properties after 1986.
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Existing buildings undergoing renovations, remodeling, expansion or step-up in basis after 1986.
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Any type of leasehold improvement and “fit-outs”.
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Building acquisitions through 1031 Exchange since 1986.
For Federal Income Tax purposes, typical building costs are broken down into three categories. Each of these three categories has a unique depreciation recovery period under the Modified Accelerated Cost Recovery System (MACRS).
Tangible Personal Property - |
5 or 7 years |
200% DB |
Land Improvements - |
15 years |
150% DB |
Real Property - |
27 ½ or 39 years |
Straight-Line |
Recent guidance issued by the IRS illustrates the distinct superiority of the engineering based methodology over all other approaches to cost segregation. According to the IRS, the engineering approach is “the most methodical and accurate approach, relying on solid documentation and minimal estimation.” The IRS further recognizes that this approach “is the most time consuming method” yet “provides the most accurate cost allocations.”
Although other approaches are easier and quicker to perform, they do not provide the documentation or defensibility of our cost segregation studies which follow the engineering approach. Unfortunately most of the firms providing these specialized depreciation studies are taking the quick and easy way out by using a residual method. The IRS has taken the position that “the residual estimation approach is an abbreviated method” and “although simpler and less time consuming than the engineering approaches, it can be less accurate.” The IRS further cautions that the residual estimation approach “can produce skewed results.”
Why should I select Capital Recovery Group to conduct my study?
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Knowledge.
Capital Recovery Group studies meet or exceed the IRS standards set to conduct a thorough Cost Segregation study, and provides the most thorough, concise and complete studies available to a client.
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Experience.
Our engineering team has been conducting Cost Segregation studies since the 1980’s.
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Results.
Our detailed engineering approach typically identifies 15%-35% more assets to accelerate than any other firm that offers Cost Segregation, including accounting firms.
What are the benefits of a Cost Segregation study?
By conducting a Cost Segregation study, the IRS allows taxpayers to reclassify certain long life assets associated with a commercial building placed in service after 1986. The benefit of this process is to identify all of the depreciation expense that was previously understated and reclassify them to a short life asset, reducing the building owner’s tax liabilities for the remaining life of the building.
Major Client Benefits
- Immediately impacts your cash flow position.
- Significantly reduces corporate and personal tax liabilities.
- Reclaims “missed” depreciation deductions without amending tax returns from prior years.
- Frees up money for improvements, expansion or renovation projects.
- Typical ROI is 5:1 to 50:1 on project fee.
How do I start the Cost Segregation process?
At Capital Recovery Group, starting the Cost Segregation process is as simple as 1–2–3.
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Call 952-200-4849 (toll-free 888-861-3331) to schedule a one-hour informational meeting at your place of business to learn about our services, review sample case studies, and discuss Cost Segregation in greater detail as it pertains to your building.
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Provide CRG with a copy of your non-financial documents (blueprints, depreciation schedule, building spec’s, etc) for our engineers to analyze. CRG does a free, no-obligation Net Present Value (NPV) estimate where we discuss our findings and give you a projected benefit range. This process takes 5-10 business days to complete.
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Schedule a NPV conference call to review our findings with yourself, your CPA and one of our engineers. We keep all information confidential.
