1. What is Cost Segregation? Presentation by Cost Segregation Services, Inc.
2. Cost Segregation Cost segregation is an established tax application of using an engineering study to identify various components of a commercial property that qualify for accelerated depreciation.
3. 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.
4. Landmark Court Case Hospital Corporation of America (HCA) vs. IRS Commissioner, 109 TC 21 (1997).
5. 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.
7. 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.
8. 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.
9. 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
10. 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.
11. AICPA Journal of Accountancy Aug. 2004 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.
12. IRS and Methodology The IRS has addressed this issue but only briefly, i.e., Revenue Ruling 73-410, 1973-2 C.B. 53, Private Letter Ruling (PLR) 7941002 June 25, 1979), Chief Counsel Advice Memorandum 199921045 (April 1, 1999). These documents all emphasize that the determination of § 1245 property is factually intensive and must be supported by corroborating evidence. In addition, an underlying assumption is that the study is performed by "qualified“ individuals or firms, such as those employing "…personnel competent in design, construction, auditing, and estimating procedures relating to building construction" (PLR 7941002).
13. 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.
15. Contact Information Phillip Harp Client Service Cost Segregation Services, Inc. Direct Line: 479.263.1390 Toll Free: 866.280.6174 plharp1@cox.net www.costsegserve.com
