I was wondering if anyone has actually used Titan Echo cost segregation software. I have recieved quotes to do a cost-seg from a specialist on a pair of FURNISHED 16 unit apartments. However, the way the deal worked out we closed one in November 2018 and the other in January 2019 and could no longer justify the price. Even at 32 units it was not cost efficient enough to make the “juice worth the squeeze”. However, if this software works well it could be easily worth the $600. Any thoughts?
Cost segregation isn't rocket science by any means, and your properties sound reasonably simple. Perhaps if you are handy and with a little search time on the internet tapping various sources you could do it yourself.
@Chris Dengel I have used it before. I'm a CPA so I've used it on behalf of clients of mine. It really makes sense on commercial properties with acquisition price in excess of $500,000 and some to major rehab having been done. The $600 version of their full software is basically going to give you historical averages allocated across the purchase price that you can use to reclassify. If you look into the audit techniques for cost segregation, there are several methods that can be used. The full blown engineering report is more likely to succeed in an audit, the historical average has less probability. None of their products guarantee the IRS will agree with the reclassification.
@Christopher Smith I agree the process is fairly straightforward but the risks of doing it yourself and having the IRS throw out your conclusion and taking on penalties and interest for under reporting income is something to factor into your cost decision. If you go the route of doing it yourself make sure you can easily justify every decision that was made as a starting point.
@Chris Dengel The problem with the software is that it is not the accepted quality report that the IRS requires.
I'm not sure what kind of quotes you got, but the fact that you placed the two properties in service at different times, means yo would need to produce two separate reports.
Thanks for the replies. The original purchase price was 850k in 2018. But delays pushed one building out to 2019, making purchases 450k in 2018 and 400k in 2019. I had one company price me upwards of 15k for a cost seg, which is a little hard to justify if my CPA and I can do it for a fraction of the cost. I think one of the majors parts of this equation is the apartments are furnished. Their analysis says I could potentially realize 100k per building.
@Michael Pease Do you think your clients decision to use the software was well justified? I have to have this conversation with my CPA as well.
@Christopher Smith I agree. However, what I’m thinking is if i were to work on this project and do the research, could this software potentially save me 10 hours of digging the internet of potentially useless information. I think that would be worth the $600. IF it works.
@Yonah Weiss The two separate reports was a deal breaker for sure. Thanks for the link. Looking at the info, this is what the software claims to provide. Do you have an example of something that doesn’t conform to the IRS standards?
@Chris Dengel I have done 5 or 6 of these now for clients. Usually I'm doing them for business owners who also own their buildings so accelerating depreciation in the rental company, and raising rents on the S Corporation has been an extremely lucrative model. The major piece of this is the partial disposition regulations. Under prior regulations, if you bought a building and replaced the roof you'd be depreciating both the old and the new. Under new regulations, you can do a partial disposition. You identify the original purchase price of that roof as a percentage of the total acquisition cost. When you replace the roof, you dispose of the old roof, and start depreciating the new roof. This adds incredible tax savings. $15k for buildings under a million is a rip off. Engineering firms will charge you that. I did one recently for $6,000 that was a purchase price just under a million. The building owner generated great benefit, I made money for my firm, and the software company, Titan Echo, made some on their software. Seemed like a win across the board to me. Discuss with your CPA for sure! If this isn't something they offer it's a great add on service that is relatively straightforward, although time consuming, to learn and perform.
@Chris Dengel Agree with the others, whoever is charging $15K for this is not working in your best interest. A fully engineered cost segregation report with complete asset detail should be half that cost. There are a number of charlatans out there claiming to be cost seg experts. We did a similar $600K+ multi-family project in KY recently with great results. Automated models work well on some properties, but do not provide the asset detail for future abandonment, disposition or retirement of assets. Should an audit occur, you need the firm to stand behind and defend you by then delivering the asset detail to support the conclusions. Shop around.