Q. What is Cost Segregation?

A. Cost Segregation is a service where we segregate shorter-lived parts of a building for federal and state income tax reporting purposes.  Cost Segregations provide significant tax and cash flow benefits by accelerating depreciation deductions as allowed by tax law.  The main objective of a cost segregation study is to move as much depreciable basis as possible from 39 year (commercial property) or 27.5 year (residential property) assets to 5 or 7 year (tangible personal property) or 15 year (land improvements).

Q. Does my CPA handle cost segregation studies?

A.  Most CPAs do not perform cost segregation studies.  We often work in tandem with our client’s CPAs, where we provide tax depreciation basis to them.  In doing this, your tax preparers have much better information to prepare income tax returns to minimize your federal and state income tax liabilities. 

Q. How much can you save us?

A. Amounts below are represented in net present values of federal tax savings, where assets re-classed from 39 year property.  State tax savings are also available.

-          For each dollar that we can re-class as 5-year property, we can save you between 18-23 cents. 

-          For each dollar that we can re-class as 7-year property, we can save you between 16-21 cents.

-          For each dollar that we can re-class as 15-year property (land improvements), we can save you about 10-12 cents.

-          The range assumptions:

                                          i.    Effective tax rate between 35-40%

                                         ii.    Discount rate between 8-12%

Q. How much do you charge?

A. Our fees are charged based on the hours we estimate for each project.  Generally, our fees are very competitive.  Please call or e-mail us anytime to receive a NO-COST estimate of potential income tax savings and an hourly fee.

Q. How does someone perform a cost segregation study?

A. Our ASA appraiser/cost segregation expert will review plans, financial appraisals (for purchase of an existing property), review construction costs (for new construction), and the mechanical, electrical and plumbing drawings.  Our appraiser will also perform a site inspection of the property and will gather all materials (pictures, notes, drawings, etc) needed to estimate costs of 5, 7, 15, 27.5, and 39 year property.  This will also provide solid documentation in the event of an IRS audit.

Q. How long does it take to complete the study?

A. Normally, once a contract is signed, the study can be completed within 4-6 weeks.  Each company/client has a specific filing deadline they are required to meet, so Tax Advisors will work within that time-frame to meet those deadlines. 

Q. Who conducts the cost segregation studies for Tax Advisors?

A. Our cost segregation analysts are certified real and personal property appraisers with 35 years combined experience.  They are certified by the American Society of Appraisers (ASA) as Senior Appraisers in the discipline of Machinery & Technical Specialties/Cost Surveys (experts in the cost approach).  They are also licensed as certified real estate appraisers.

Q. Who can benefit?

A. If you are a builder, owner, or purchaser of commercial real estate or industrial/manufacturing property, you can significantly reduce your federal and/or state income tax burden.  Property and building types include:

• Hotel/Motel/Lodging Properties

• Apartments/Multifamily

• Senior and Assisted Living Facilities

• Office Buildings

• Retail Properties

• Manufacturers

• Warehouses

• Restaurants

• Power Plants

• Medical Offices

• Hospitals

• Shopping Centers

• Grocery Stores

• Financial Institutions

• Recreational/Entertainment Buildings

Q.  Why should REITs consider cost segregation studies?

A.  Cost segs are viable for REITs, noted as follows:

• There should be no concern about the real versus personal property asset test, as the   denominator is measured by fair market value and thus the personal property ratio to total is diluted;

• If distributions on REIT shares are lower than the 90% of taxable income required distribution (most REITs distribute 100% of TI), a cost seg will reduce taxable income and thus reduce required distributions;

• If planned distributions are higher than taxable income, a cost seg will reduce taxable income and allow more flexibility to the REIT in making lower distributions to conserve cash, if needed;

• In a year where a REIT has significant capital gain income (from sales of properties) and their taxable income is high, cost segs will reduce TI and reduce required distributions;

• If the REIT is concerned about the investors return on investment, a cost seg will increase the ROI.  Investors receive 1099s with two amounts that in total equal their distribution, one for taxable income and the other for a return of capital.  Cost segs can reduce earnings and profits/taxable income and shift income from taxable to return of capital.  Since the investor pays less tax, their ROI goes up.

Q. Why choose Tax Advisors?

A.  Here’s what sets us apart from our competitors:

• We have a group of people who are highly qualified, dedicated, experienced, and client-service oriented in performing cost segregation services;

• We meet time frames, have excellent IRS audit experience (no-change adjustments), and our fees are typically lower than other firms;

• Tax Advisors has a combination of CPAs and ASA appraisers, with a focus in Machinery and Technical Specialties (cost surveys);

• Tax Advisors will work with your tax preparer to estimate tax savings and supply data for income tax returns to minimize your federal and state tax liabilities.