This document provides an overview of cost segregation, which is an engineering study that identifies components of commercial property that qualify for accelerated depreciation. Key points include: - Cost segregation was established in the 1986 Tax Reform Act and a landmark 1997 court case. It allows for reclassifying assets for faster depreciation. - Benefits include immediate tax savings, increased cash flow, and recovering missed depreciation. Properties built or renovated since 1987 may qualify. - The process involves an engineering study to determine eligible components, followed by tax filing to claim the benefits.

1. What is Cost Segregation?Presentation by Cost Segregation Services, Inc.

2. Cost SegregationCost segregation is an established taxapplication of using an engineering studyto identify various components of acommercial property that qualify foraccelerated depreciation.

3. History Tax Reform Act 1986No 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 CaseHospital Corporation of America (HCA) vs. IRS Commissioner, 109 TC 21 (1997).

5. Accelerated DepreciationCarpet, 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.

6. Re-classified Assets

7. Benefits of Cost SegregationUncovers 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 QualifiesProperty 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 candidacyEstimate of tax savingsFlat fee pricing as recommended by the IRS

10. Cost Segregation ApplicationStudy 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. AICPAJournal 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 MethodologyThe IRS has addressed this issue but only briefly, i.e., RevenueRuling 73-410, 1973-2 C.B. 53, Private Letter Ruling (PLR)7941002 June 25, 1979), Chief Counsel Advice Memorandum199921045 (April 1, 1999). These documents all emphasize thatthe determination of § 1245 property is factually intensive and mustbe supported by corroborating evidence. In addition, anunderlying assumption is that the study is performed by "qualified“individuals or firms, such as those employing "…personnelcompetent in design, construction, auditing, and estimatingprocedures relating to building construction" (PLR 7941002).

13. Partner With A ProfessionalIndustry 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.

14. QUESTIONS?Do you have any questions?Thank you for your time.

15. Contact InformationPhillip HarpClient ServiceCost Segregation Services, Inc.Direct Line: 479.263.1390Toll Free: 866.280.6174plharp1@cox.netwww.costsegserve.com