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Cost Seg Training 10 2010

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Cost segregation powerpoint presentation to learn more on the benefits and application

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Cost Seg Training 10 2010

  1. 1. costsegregationpartners.com | 800-591-0148 Cost Segregation Studies Grant Keppel, CPA National Director
  2. 2. costsegregationpartners.com | 800-591-0148 Cost Segregation Studies (CSS) What are they? • Comprehensive analysis of hidden personal or tangible property for commercial buildings. • Analyze cost data including the contractor’s application of payments (AIA), change orders, owner incurred costs, and indirect disbursements. • CSS is not a component study.
  3. 3. costsegregationpartners.com | 800-591-0148 Cost Segregation Studies (CSS) What are they? • Analyze purchase price of property to segregate assets from the building cost • Generally 15-50% of costs can be segregated to shorter lived assets • Allows indirect costs to be allocated to various depreciable lives.
  4. 4. costsegregationpartners.com | 800-591-0148 • New buildings under construction • Existing buildings undergoing renovation or expansion • Office leasehold improvements and “fit-outs” Cost Segregation Studies (CSS) Applies to What?
  5. 5. costsegregationpartners.com | 800-591-0148 • Purchases of existing properties. • All post - 1986 real estate construction, building acquisitions or improvements. Cost Segregation Studies (CSS) Applies to What?
  6. 6. costsegregationpartners.com | 800-591-0148 The Evolution of CSS’s • Pre TRA-86 CSS undertaken to take advantage of ITC which was only available on personal and other tangible property • ITC issues were resolved through IRS rulings and the courts • At least 100 IRS rulings/cases on the subject • New Ruling in 2008
  7. 7. costsegregationpartners.com | 800-591-0148 Benefits of Cost Segregation Studies • Increased depreciation in earlier years and/or one time catch up in one year – results in less federal and state income taxes – results in increased cash flow
  8. 8. costsegregationpartners.com | 800-591-0148 HCA Case (109 TC 21 (1997)) • Old ITC case law can be used in determination of structural component vs. personal property for purposes of MACRS. • Reaffirmed by IRS on its acquiescence.
  9. 9. costsegregationpartners.com | 800-591-0148 IRS Revenue Procedure 2008-52 • Allows a one year catch up on missed depreciation deductions. • Provides one year “windfall” for those who where in error the first time • Generally for buildings purchased or constructed subsequent to 1986
  10. 10. costsegregationpartners.com | 800-591-0148 IRS Revenue Procedure 2008-52 • No need to amend returns previously filed. • Automatic Accounting Method Change with no fee for filing Form 3115. • Form 3115 must be filed by the tax return due date including extensions.
  11. 11. costsegregationpartners.com | 800-591-0148 IRS Revenue Procedure 2008-52 • Can provide cash flow windfall even though the statute of limitations is closed on the property construction or acquisition year. • Two tax years must be filed before utilization of procedure – No longer.
  12. 12. costsegregationpartners.com | 800-591-0148 Bonus Depreciation • Contracts in 2008 - 2010 • In service in 2008-2010 • 50% in year one – assets with class life of 20 years or less
  13. 13. costsegregationpartners.com | 800-591-0148 Major Areas of Cost Allocation • Electrical • Plumbing • Site Work • HVAC
  14. 14. costsegregationpartners.com | 800-591-0148 • Finished Carpentry • Indirect or Soft Costs • Owner Incurred Costs Paid Outside of General Contract Major Areas of Cost Allocation
  15. 15. costsegregationpartners.com | 800-591-0148 Electrical
  16. 16. costsegregationpartners.com | 800-591-0148 Interior Electrical for Machinery and Equipment
  17. 17. costsegregationpartners.com | 800-591-0148 Plumbing
  18. 18. costsegregationpartners.com | 800-591-0148 Plumbing Trench Drains
  19. 19. costsegregationpartners.com | 800-591-0148 Plumbing Interior Kitchen Equipment
  20. 20. costsegregationpartners.com | 800-591-0148 Plumbing Grease Interceptors
  21. 21. costsegregationpartners.com | 800-591-0148 Site Work
  22. 22. costsegregationpartners.com | 800-591-0148 Who Benefits????
  23. 23. costsegregationpartners.com | 800-591-0148 Manufacturing
  24. 24. costsegregationpartners.com | 800-591-0148 Special Use Building
  25. 25. costsegregationpartners.com | 800-591-0148 Car Dealerships
  26. 26. costsegregationpartners.com | 800-591-0148 Hotels & Motels
  27. 27. costsegregationpartners.com | 800-591-0148 Medical Office Building
  28. 28. costsegregationpartners.com | 800-591-0148 Financial Institution
  29. 29. costsegregationpartners.com | 800-591-0148 Nursing Homes
  30. 30. costsegregationpartners.com | 800-591-0148 Fast Food Restaurants
  31. 31. costsegregationpartners.com | 800-591-0148 Office Buildings
  32. 32. costsegregationpartners.com | 800-591-0148 All Other Buildings
  33. 33. costsegregationpartners.com | 800-591-0148 Case Study
  34. 34. costsegregationpartners.com | 800-591-0148 Case Study
  35. 35. costsegregationpartners.com | 800-591-0148 Case Study • $2.7 Million Ambulatory Surgical Center • Engineering Analysis • $170,000 – 15 yr. 6.2% • $1.3 Million – 5 yr. 48%
  36. 36. costsegregationpartners.com | 800-591-0148 Case Study • 71.4% of plumbing was process (medical) • 56% of HVAC was process (medical) • 73.5% of electrical was process (medical) Additional depreciation Yr. 1 $230,000 Additional depreciation Yrs. 2-4 $745,000
  37. 37. costsegregationpartners.com | 800-591-0148 Common Questions/Concerns: • IRS Audit Experience?
  38. 38. costsegregationpartners.com | 800-591-0148 Potential of Reclassification Type of Structure Percentage Misclassified 1. Retail 10-40% 2. Grocery Stores 15-40% 3. Office Building 10-15% 4. Hotels 20-40% 5. Warehouses 8-12% 6. Light Mfg 15-40% 7. Heavy Mfg 25-70% 8. Processing Plants 60-90% 9. Nursing Homes 15-30% 10.Restaurants 15-40%
  39. 39. costsegregationpartners.com | 800-591-0148 Connecticut, Prime High-rise A 92 mil, 15 story office with a separate parking garage and plaza wherein we located over 230 qualified assets. The results were 8.36 mil in 15-yr, 4.08 in 7-yr, and over 1.83 mil in 5-yr. Alabama, Office Building A 400,000 sq.ft. building leased to the U S Government. In the 31 mil purchase price, we located 4.35 mil in 15-yr, 2.6 mil in 7-yr, and 1.22 mil in 5-yr assets. Case Studies
  40. 40. costsegregationpartners.com | 800-591-0148 Factors To Consider • Profitability • Partners / Shareholders of Pass-Thru Entities • Mid Quarter Convention • Other Depreciation Elections Previously Made on Tax Returns • Like Kind Exchanges
  41. 41. costsegregationpartners.com | 800-591-0148 Factors To Consider • Passive Loss Rules • Early Disposition • Alternative Minimum Tax • Estate Planning
  42. 42. costsegregationpartners.com | 800-591-0148 QUESTIONS??

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