Cost Segregation Study

The Key to Real Estate Tax Savings
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01

What is a Cost Segregation Analysis?

Cost segregation analysis is a tax planning strategy that can help real estate owners and tenants to accelerate depreciation deductions. Although standard depreciation occurs over a lengthy 39-year period, many assets within a structure–from plumbing and electrical fixtures to flooring–are not designed to last that long. 

Cost segregation consultants can break out such assets for a five-year, seven-year, or 15-year recovery period, helping accelerate depreciation, defer taxes, and improve cash flow.  

02

When Can a Cost Segregation Firm Perform a Cost Segregation Analysis?

 Cost Segregation services are useful throughout the real estate life cycle:  

    • Recent Acquisitions  
    • New Construction  
    • Pre- and Post-Renovation  

 

 

03

What Are the Cost Segregation Tax Benefits?

  • Accelerated Depreciation 
  • Bonus Depreciation   
  • Increased Cash Flow 
  • Decreased Tax Burden  
  • A Quality Cost Segregation Analysis Provides the Documentation Required to Support a Host of Tax Strategies, including Tangible Property Analysis, Partial Asset Disposition, and EPAct 179D Energy Efficiency Deductions  

Our Cost Segregation Consultants are Subject Matter Experts

COST SEGREGATION

FULL COMPLIANCE with ASCSP MQS 2016 and Subsequent Audit Technique Guideline
METICULOUS In-Person Site Visits Document all Assets to Support Tax Strategies
30 day Turnaround from Site Visit to REPORT DELIVERY
COMPREHENSIVE REPORT includes Photos, Spreadsheets, Graphical Analysis, and 100+ Pages of Content

Partners Each Have
20+ YEARS
of Industry Experience

8,000+
Cost Segregation
Analyses Performed

Experience in all
50 States

ASCSP
Certified Professionals on Staff

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The Best Cost Segregation Companies are Client-Centered 


We’re Focused on Your Goals

MEET

We meet to understand the facts and circumstances of each project so we can
suggest the right cost segregation services to meet your needs.

PLAN

Considering the timeline, estimated benefits, and property details, we create a customized plan to maximize cost segregation tax benefits.

IMPLEMENT

Our engineers and cost segregation consultants give you the necessary data and analysis to support tax savings.

MONITOR

We actively revisit projects if new savings opportunities become available and stand by our service with a warranty of no-cost audit defense.

Frequently Asked Questions (FAQs)


ABOUT COST SEGREGATION SERVICES

What is a Cost Segregation Analysis and How Does it Work?

Cost segregation is a tax planning strategy that can help real estate owners and tenants to accelerate depreciation deductions. Although standard depreciation occurs over a lengthy 39-year period, many assets within a structure – from plumbing and electrical fixtures to flooring – are not designed to last that long.

The ability to break out such assets for a five-year, seven-year, or 15-year recovery period helps accelerate depreciation, defer taxes, and improve cash flow.

What are the Tax Benefits of Cost Segregation?
Cost segregation is the key to a variety of tax benefits. Accelerated depreciation is just the beginning. Bonus depreciation is an additional incentive that permits the additional write-off of an eligible asset’s value in addition to standard depreciation. Cost segregation also provides the data required to perform other tax strategies, including Unit of Property (UoP), Tangible Property Analysis Consulting (TPA), and Energy-Efficiency Studies.
What is a “Look-Back” Cost Segregation Study?
Ideally, it’s best to perform a cost segregation study immediately after a property is placed-in-service, to maximize savings from day one. However, if that was not possible, the IRS allows the benefits from previous years to be claimed using a “look-back” cost segregation study. By reclassifying assets to their correct lives, taxpayers can “catch-up” on all the depreciation they would have gotten had the study been performed on day one.
How Do I Claim the Tax Benefits of Cost Segregation?

The tax benefits of cost segregation may be claimed as a depreciation expense on Tax Form 4562 for current-year studies, or through the use of a Form 3115 for look-back studies.

 Your cost segregation consultant will work with you and your tax provider to make sure all benefits are claimed properly.

I Just Purchased a Commercial Property. Might I Benefit from a Cost Segregation Study?
Certainly – newly constructed or acquired commercial properties make great candidates for study. The best cost segregation companies will assist with study timing and planning.
I’m Planning to Remodel a Property I own. Should I Consider a Cost Segregation Study?

Absolutely. In fact, you should consider TWO cost segregation studies – one before renovation and one afterwards.

It might seem counterintuitive to perform a detailed study of assets that you plan to dispose of. Why quantify assets that are on their way out? The answer is simple — if these assets are quantified through a cost segregation study before they are retired, you can use that data to take advantage of a strategy called Partial Asset Disposition (PAD) Election. PAD Elections permit a taxpayer to write off the remaining depreciable basis of an asset that was disposed of in the year it was removed. This can be an incredible tax-savings strategy, but requires a complete record of the assets in question.

If you are planning to incorporate energy-efficiency into the remodeling, cost segregation also provides data useful in Energy-Efficiency Studies, including the EPAct 179D Deduction and the Sec. 45L Credit.

What Makes a Real Estate Property a Good Candidate for a Cost Segregation Study?

Your cost segregation consultant can work with you to explore the potential of your particular properties, but here are some general encouraging factors:

  • Newly constructed or acquired properties with a depreciable basis of > $1M  (However, favorable legislation means that smaller properties benefit too – the $1M basis is no longer considered a must)
  • Renovations costing > $300,000

Certain property types are known for being particularly good candidates: Manufacturing and industrial facilities, multifamily properties, auto dealerships, for-profit medical facilities, self-storage facilities, etc.

How Much Does a Cost Segregation Study Cost?

A cost segregation study’s cost will vary on several factors:

  • Property size, type, location
  • Property history/complexity
  • What property information is readily available
  • Number/type of tenants
What Are the Potential Drawbacks of a Cost Segregation Study?

The main potential drawback of a cost segregation study is depreciation recapture.

However, if the property is held for at least 3-5 years, the benefits of accelerated depreciation generally outweigh the potential tax liability from recapture. Furthermore, there are multiple strategies in play that minimize recapture, including PAD (Partial Asset Disposition) Elections and 1031 Exchanges.

Your tax professional and cost segregation consultant can help you determine if recapture tax is a realistic concern in your particular situation.

I’m in Pennsylvania. Are there State-Specific Rules for Cost Segregation in Pennsylvania?

Cost segregation is a federal tax strategy. There are no state-specific rules for cost segregation in Pennsylvania.


ABOUT COST SEGREGATION FIRMS

What is a Cost Segregation Consultant? How Can They Help Me?
A cost segregation consultant is an expert in cost segregation and related services, who can help you navigate these strategies and maximize tax savings on your property.

A good cost segregation consultant will want to understand your unique tax situation, plus have a sense of your future goals. Then they will work with you to create a customized plan to get you where you’re going.

A great cost segregation consultant will develop a relationship with you that transcends a single property, and can be a tremendous resource for tax planning over the long-term.

Do I Need to Hire a Cost Segregation Company? Can a Cost Segregation Study be Done Without a Tax Professional?

No, a cost segregation study should not be performed without a tax professional. In fact, performing a quality cost segregation study requires the skills and experience of a trained engineer who will:

  • Draw on knowledge of construction methods and costs
  • Perform a forensic analysis of property details while quantifying every possible asset
  • Break-out assets, assign costs, and place in appropriate class-life category
  • Have conclusions approved by tax and technical experts to ensure complete accuracy and compliance with IRS regulations  <

The IRS’ Cost Segregation Audit Techniques Guide lists 13 “Principal Elements of a Cost Segregation Study.” The very first element is “Preparation by an Individual with Expertise and Experience,” and the Guide explicitly states that: “… a study by a construction engineer is more reliable than one conducted by someone with no engineering or construction background.”

In short, this is not the time to DIY. Cost segregation studies should be performed by experienced engineers who can provide reports that maximize savings while remaining defensible in the unlikely event of an audit.

I’m Looking at Several Cost Segregation Firms. How Do I Select the Best Cost Segregation Company for Me?
Not all cost segregation companies are created equal. In fact, cost segregation firms can vary dramatically in their approach to the study itself, and in the way they relate to clients. When choosing a cost segregation company, be sure to ask the following questions:

  • How many studies have been performed by your team?
  • Will my study be performed by a degreed engineer? Do you have ASCSP-Certified team members on staff?
  • Do you provide a complimentary Estimate of Benefits?
  • Is a site visit performed
  • What methodology is used to create the report? What kind of technical/tax review process is involved?
  • How frequently will you communicate with me/my client? Can you tailor your level of engagement to our preferences?
  • Will you stand behind your work product in the unlikely event of an audit?
  • Can you help us craft a comprehensive tax plan that will serve us now and in the future?
  • If legislation changes create new savings opportunities, will you revisit my report?
I see that Capstan is a Cost Segregation Firm in Pennsylvania. Do You Only Perform Studies on Properties in Pennsylvania?

While it’s true that Capstan is headquartered here in Dresher, Pennsylvania, we have offices nationwide, and we perform studies from coast to coast. We recently hit our 50th state!

Case Studies

01

Real Estate

Cost segregation is an IRS-approved tax savings strategy for real estate owners and investors. By taking advantage of accelerated depreciation, cost segregation “front-loads” depreciation deductions so the taxpayer gets them sooner, taking advantage of the time value of money. Cost segregation studies may be performed on virtually any type of commerical or residential rental real estate, and are performed on newly constructed properties, acquired properties, and renovated properties.

02

Auto Dealership 

Purchasing a vehicle online is a viable option these days, but only a small subset of the population is comfortable doing so. Many patrons begin browsing online, but most will eventually end up in a physical showroom, and that’s why dealership refreshes remain popular. Dealers are making certain that their online presence is modern, attractive, and welcoming, and they want their showrooms to evoke the same feelings.

03

Hotel

The hospitality industry has changed a lot in the past decade. Guests want to select lodging that aligns with their values, and hoteliers are making eco-friendly choices and incorporating biophilic design into new spaces. Tax strategies like cost segregation can help offset the costs of these choices, making an eco-friendly hotel into a reality.

04

Multi-Family

Renting is more popular than ever – the population of renters in U.S. cities has increased by over 30% since 2000. This has driven a commensurate increase in multifamily construction, and developers are striving to stand out from the pack. Current trends for attracting and retaining residents include time-savings services, flexible wellness zones, and pet-friendly amenities. These “extras” are attractive, but also add to a developer’s bottom line, and many seek out tax savings strategies to offset some of this initial investment.

05

Office Building

Office buildings with tenant and common areas are strong candidates for cost segregation. The combination of personal property in tenant-specific improvements, along with land improvements that accommodate the building’s parking needs, consistently result in solid first-year tax savings.

06

Retail

While there will always be a place for the traditional enclosed shopping mall, many consumers today prefer open-air shopping centers. These days convenience is key, and shoppers enjoy the ease of driving right up to their retailer of choice. Developers are heeding the call, and many have converted increasingly vacant indoor malls into bustling open-air shopping centers.

07

Restaurant

The restaurant industry has always been competitive, as consumer tastes and trends can be quite changeable. Even so, entrepreneurs with a passion for food are undeterred, and many are taking advantage of the recent CARES Act to increase critical cash flow in a restaurant’s early years.

08

Self-Storage

The self-storage market has become highly competitive, with new facilities opening frequently. Owners are adding extra features to attract customers, emphasizing security and curb appeal. Naturally, owners want to ensure that they are getting the greatest possible return on these investments. Capstan has partnered with hundreds of owners and their tax advisors, collaborating to ensure maximum tax savings on self-storage facilities.

09

Treehouse

In nearly 20 years as a Cost Segregation Professional, Capstan’s Ziv Carmel thought he’d seen it all.  He was wrong.

This fall, Ziv journeyed to scenic Norway, Maine, to explore The Woods Maine, a high-end custom treehouse that combines bespoke and bucolic with remarkable results.   The Woods Maine is a privately-owned Luxury Treehouse designed by world-renowned Treehouse Master, Pete Nelson.  The stars of Animal Planet’s Treehouse Masters, Pete Nelson and Nelson Treehouse & Supply are artists who seek to make everyone feel “at home in the trees.”  With The Woods Maine, they certainly succeeded.

INTERESTED IN A FREE ESTIMATE OF BENEFITS FOR YOUR COST SEGREGATION ANALYSIS? 

Types of Cost Segregation Studies and Related Services

What type of Cost Segregation Study is right for your project? Different opportunities call for different types of study, and several options are listed below, along with related cost segregation services. Our cost segregation consultants will work closely with you to select the most appropriate Study based on your current circumstances and your future plans.    

Standard Cost Segregation Study (SCSS) 

The Capstan Standard Cost Segregation Study (SCSS) is designed to aid commercial real estate owners in the United States. Cost segregation tax benefits can be significant, but cost segregation companies must ensure that the studies are properly performed to IRS standards.

The SCSS adheres to the IRS Audit Technique Guidelines, documenting the data required to support accelerated depreciation. It can be used in most ownership scenarios and is applicable to everything from new acquisitions to look-back studies of assets placed into service as far back as 1987.

Cost Segregation Desk Review (CSDR) 

The Capstan Cost Segregation Desk Review (CSDR) is a streamlined form of the Standard Cost Segregation Study that is appropriate for simple, new construction projects only, as there is no associated on-site visit.

The study synthesizes the existing detail found in invoices, contractors’ ledgers, and a full set of construction drawings to accelerate depreciation and ensure that all assets are placed in the proper Modified Accelerated Cost Recovery System (MACRS) asset class life. 

3115 Documentation 

The Capstan Tax Director will prepare any required 3115 tax documentation in order to change the accounting method of an entity, which often occurs at the conclusion of look-back cost segregation studies. This service is typically performed at the request of the client’s CPA. 

Advanced Cost Segregation Study (ACSS) 

The Capstan Advanced Cost Segregation Study (ACSS) enhances the level of asset pricing detail found in SCSS, particularly regarding base-building assets (Section 1250 assets). This is the most involved level of cost segregation services provided by Capstan. The purpose of this additional detail is to enable a property to undergo future asset dispositions in accordance with the IRS-issued Tangible Property Regulations, maximizing cost segregation tax benefits.

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Capstan Tax Strategies
200 Dryden Road
Suite 3400
Dresher, PA 19025

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