Reduce Your Tax Burden With a Cost Segregation Study

An engineering-based cost segregation study is a tax planning tool that can dramatically lower the tax liability tied to real estate. It’s an affordable investment for commercial property owners that can yield large returns, and Empowered Tax Strategies can help you get it.

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Overview & Qualifications

A cost segregation study is a tax planning tool that’s based on a detailed process that identifies all the costs associated with a building’s purchase, construction, or renovation. Each cost identified is assigned its shortest possible recovery period per IRS guidelines.

This allows owners to increase depreciation deductions, reduce their income tax liabilities, and maximize cash flow from their real estate investment. Veritax’s cost segregation studies are an affordable investment for real estate investors and yield significant returns.

Our cost segregation advisors will determine if your property is a good fit for the study by first preparing an initial detailed no-cost analysis in which we analyze the benefits of performing a study. During this time, we’ll also ensure you meet the minimum qualifications for a study, which are as follows:

  • You have taxable income
  • You have purchased, constructed, or renovated (including tenant improvements) a commercial real estate property in the last 20 years
  • Your purchase or construction costs are $250,000 or greater

Data Collection

Once our team of cost segregation tax and financial advisors have determined that there are significant benefits to performing a study and that you qualify, we’ll begin requesting all appropriate documentation, such as:

  • Appraisals
  • Building plans
  • Construction drawings
  • Purchase agreements

Site Visit

Once we’ve completed the data collection phase, we’ll visit your property to determine the accuracy of the building plans and identify the building components that qualify for a shorter recovery period. This is documented through measurements, pictures, and field notes.

Analysis

All information we’ve gathered up to this point is entered into specialized engineering software. That software integrates the plans of the building and calculates the measurements and counts of all building components. Finally, we download the data into our powerful proprietary software that assigns pricing and recovery periods to each component.

All studies include a thorough review and documentation of the tax law that allows taxpayers to assign a building component to a shorter recovery period.

If the study is being done on a property constructed or purchased in a prior year, we will provide the appropriate information to file IRS Form 3115 (Change of Accounting Method).

Cost Segregation FAQs

Does my tax preparer already do this?

Most tax preparers depreciate equipment and other building costs (such as parking lots and carpeting) at 5, 7, or 15 years.

Our cost segregation advisors can identify costs that can’t be readily seen, such as the wiring and plumbing needed to run the equipment.

We’ve found that our process results in identifying additional costs that can be reclassified as 5-year, 7-year, and 15-year recovery periods.

Do I need to amend my tax return to get cost segregation tax benefits?

No. You only need to file IRS Form 3115 (Change of Accounting Method), which allows you to take the “catch-up” depreciation in the year you wish to apply the study. We can assist your CPA in completing this form and will provide the appropriate supporting schedules.

How much does it cost, and how much will I save?

In all of our projects, we prepare an initial detailed no-cost analysis to determine the benefits of conducting a cost segregation study. From this analysis, we determine the cost of the study, and then you can make a final decision on whether it would be beneficial to you.

The study fee is 100 percent deductible, and from our experience, the benefit will be three to up to 25 times the cost of the study.

Won’t my property depreciate anyway?

Yes, but it will take 27.5 or 39 years, and you will miss the benefit of having the additional cash flow to invest in your business now.

With a cost segregation study, it is not unusual to generate $50,000-$200,000 of additional cash flow that's available to re-invest however you choose. The benefit will depend on the building's complexity as well as its cost.

Does it matter if the real estate is in a separate entity from the operating entity?

Usually not. However, there are special rules that may apply in this situation, and we can help you navigate those specific tax laws.

How do I get started?

Contact Empowered Tax Strategies today at tax@empoweredtaxstrategies.com or call (888) 939-3309 to request your no-cost estimate or to book a free consultation.

 

We’ll get you started with a no-cost analysis to determine if the property is a good fit for a full study. No commitment is necessary.

Other Tax Credits & Deductions

Companies can get a tax credit for developing lighter, faster, more durable, less expensive, more reliable, or more precise products.

Property owners can expense some of their building-related expenditures, such as supplies or repairs, to reduce taxable income.

Export companies can take advantage of IC-DISC, which provides certain tax incentives for U.S.-based exporters.

Real estate investors can increase depreciation deductions, reduce income tax liabilities, and maximize cash flow.

Let's Chat

Let's get started by booking a meeting for a free consultation. We will go through different specialty tax programs that will help you save!

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(510) 386-0872