Choosing a Cost Segregation Company

[Julio Gonzalez]

Cost segregation studies can offer real estate investors massive tax benefits. So let’s start with talking about what a cost segregation study is. A cost segregation study is a strategic tax planning tool that separates the assets that have a shorter useful life and can be depreciated over 5, 7 and 15 years from the residential rental property or nonresidential real property that are depreciated over 27.5 and 39 years, respectively. By accelerating your depreciation schedules, you reduce your taxable income which in turn increases your operating cash flow. This also allows for property owners to more easily write-off assets that get damaged/destroyed as the value of these assets is determined as part of the study. You will receive a report as a result of the cost segregation study that supports the breakout between asset classes and new depreciation schedule in the event that you are audited by the IRS. Here’s an example of bonus depreciation.

While cost segregation studies are performed by many companies, remember that now all companies will provide the same quality. Here are some things you need to consider when selecting a cost segregation company:

• Will they defend my report to the IRS if I am audited?
• Does the firm have engineering licenses with the State Authorities, proper licenses overall, and proper insurance?
• How long has the firm been in business?
• Are their studies inclusive of energy tax benefits?
• Are property tax and insurance deductions included within their study?
• Do they have a good reputation with the IRS?
• Do they provide a Perpetual Cost Segregation Evergreen Annual Review to find annual expenses from dispositions, additions, favorable changes in tax laws?
• Are their reports considered quality reports as defined by the IRS?

What other questions do you have about deciding on a quality cost segregation company?