What to Expect with a Cost Segregation Study?

[Julio Gonzalez]

For those of you who have considered or are considering a cost segregation study, I’m sure many of you are wondering what exactly that process looks like? The process may vary depending on which company or specialist that you choose to work with but to give you an idea of what to expect, here is the process I’ve utilized in my own company.

• Step 1: Perform a free consultation. Most cost segregation study companies offer a free consultation. This step is very important to be able to understand the cost/benefit analysis of performing a cost segregation study.
• Step 2: Assess the client’s tax status as well as any potential business plans for the future to determine if those plans may be applicable to the Cost Segregation Study.
• Step 3: Review the property’s cost of construction related to components and systems.
• Step 4: Analyze the building’s blueprints and project specifications as well as any other important construction documents.
• Step 5: Perform an on-site or virtual Tele-Engineering visit of the project/building. On this visit, the cost segregation team will assess and document how the components and systems are being utilized.
• Step 6: Prepare a “Detailed Engineering” report of the building’s assets. This report includes site improvements, decorative finishes, special purpose mechanical and electrical systems, and any other process related to construction.
• Step 7: Determine the IRS useful life for each of the building’s components and classify or reclassify the building’s assets into the applicable tax life.
• Step 8: Determine which indirect costs relate to each asset and allocate the costs.
• Step 9: Finalize the written report that includes supporting documentation related to the reclassification of assets and well as the necessary tax forms.

Do you have any questions on the process of a cost segregation study?