Everything You Need to Know About Cost Segregation Services

It is important to be able to find solutions to the pressing costs of inflation and how it affects your business, especially in real estate property investments. The taxes due on multi-level and multi-unit buildings are high and there is a constant decrease in tenants over the past years due to the closure of small businesses and even the bankruptcy filings of other companies. To say that the economy is in a crisis is an understatement and everyone is feeling the adverse effects of inflation in the country. To be able to survive in these trying times, it is important to be able to generate new ideas that will help you solve your cash flow problems without having to resort to creative accounting of some sort. One of how a real estate property owner can do this is to look into cost segregation services. In a nutshell, Cost Segregation is an IRS-approved tax benefit strategy in which specific components of a building or improvement project that can be treated as personal property or land improvements rather than real property are identified for Federal tax purposes. A personal property depreciates over 5 or 7 years, while land improvements depreciate over 15 years, as opposed to 39 or 27.5 years for real property. To do this, a cost segregation study will have to be conducted wherein the depreciation for the property is fast-tracked so that it will then result in tax savings. Savings from federal tax can mean lower tax dues and even tax credits that you can use for capital or as a reserve. However, cost segregation is a complex and intricate matter and will involve several experts who will conduct the study. You will need a specialized firm or consultant to work with you on this matter if you decide to explore this option.

What is a Cost Segregation Services Study?

Cost segregation services are offered by providers that specialize in this form of tax credits for real estate properties. It seeks to accelerate the depreciation costs of real property investments like apartments, condominiums, malls, parking buildings, banks, casinos, sports facilities, and the like. By calculating the depreciation costs of the property in 5, 10 0r 15 years than compared to 25 or 35 years, you will be able to free up capital and translate this into additional cash flow. To be able to do this, you need a consultant that will help you conduct the cost segregation study using the IRS-approved guidelines and be able to provide you with a basis for the filing of the tax credit. There are several types of cost segregation studies that you can choose from, although it can depend on which is more appropriate for the type of property that you have. There is the standard cost-segregation study, the enhanced cost segregation study, the dispositions study, the fixed asset review, the §179D study, and the §45L study. The choice of which study to request will be done by inspecting your properties and your documents by the team of experts and you will be advised as to what study will be the most beneficial for you. If you have not yet done a cost segregation study, then you will probably be recommended with the standard type. The study will be conducted by the firm or consultants and they will be composed of building specialists, engineers, accountants, and inspectors. They will visit your property, assess its current state and be able to generate estimates of the projected depreciation value for each property that can be identified as personal property.

Where to find Cost Segregation Services Providers?

Since cost segregation is a very technical and specialized concept, there are very few firms that offer cost segregation services in the country. This would mean that you only have a handful of choices and getting the best in the industry is more preferable. The good news is that most of these firms work nationwide, so it does not matter where your property is located, you can have it inspected and estimated, although if the property is in some remote part of the country, it would take longer for it to be completed, the usual time frame is between 30 to 45 days. You need to do a series of meetings with the service providers first before your cost segregation study will be undertaken, the main goal of which is so that you can be on the same page when it comes to what needs to be done and how it should be done. You can be assured that when you hire a service provider, they will give you their best team of experts and they will do their job in the best way possible. The service providers will help you gain more savings from your property and to maximize the outcome of the study. They will also provide you with the necessary support when it comes to an audit and other inspections by the IRS so you would not have to worry about it. Moreover, setting up a meeting with them is easier and more accessible as they can make use of virtual meetings if you are far from their offices, but it is better if you can meet them in person.

What is the rate for Cost Segregation Services?

Conducting a cost segregation study is not cheap, it does require extensive site inspections, auditing of building reports and financial statements as well as calculating and estimating depreciation values, which means that cost segregation services will be a bit expensive especially if you are strapped for cash. However, the rate for cost segregation services is computed in terms of the hours spent by the firm and not by the overall savings realized in the depreciation estimates. It is just similar to having to spend a certain amount to be able to generate a greater amount, and since nothing is free nowadays, this is a cost that you can make since the benefits are greater when it is realized. You can even negotiate with the firm for the rates and they will gladly help you with certain arrangements.

Tax savings = (Reclassified cost basis × 20%–35%) × Marginal tax rate