Question 1

What is cost segregation and how does it work?

Accepted Answer

Cost Segregation is an IRS-approved tax planning strategy that can provide companies or individuals who have acquired, constructed, or renovated real estate assets with increased cash flow by accelerating the deductions from depreciation and reducing income taxes. A cost segregation study is an engineering-based analysis of real estate assets to identify the costs of components that can be depreciated more quickly for tax purposes. Typically, real estate assets are depreciated over 27.5 or 39 years for federal and state income tax purposes. However, the tax code allows certain assets to be depreciated over 5, 7, or 15 years - these assets are also eligible for year 1 "bonus" depreciation acceleration. So as much as 20% to 50% of the cost of your property may become year 1 depreciation. By identifying and accelerating depreciation deductions, cost segregation decreases federal and state income taxes and increases cash flow to the owner of the real estate asset. You can learn more about how cost segregation works here .

Question 2

What types of properties qualify for cost seg?

Accepted Answer

Most income-producing properties qualify including: short term rentals, apartments, condos, office buildings, retail centers, warehouses, manufacturing facilities, hotels, and medical facilities. Properties must be used for business or income-producing purposes, not be a personal residence.

Question 3

How much can I expect to save?

Accepted Answer

Savings vary based on property type, value, and your tax situation. Typically, our clients see first-year tax savings up to 10% of their purchase price. Our clients also typically see first-year tax savings of 5x the cost of their study. Every situation varies, but applied correctly cost seg can be a really lucrative and efficient strategy. We are happy to provide you a personalized estimate of your benefits and costs and based on your specific situation, or feel free to use our free estimate tool .

Question 4

How much does this cost?

Accepted Answer

DIY studies start at $595 per property. Engineer-Reviewed studies are $895 per property. Fully Engineered studies for larger residential and commercial properties typically start around $2,500.

Question 5

When should I do my cost seg?

Accepted Answer

Ideally in the same tax year as your acquisition, construction, or renovation — but look-back studies (studies done years later) are very common and can still deliver very attractive tax savings. With a look-back study you do a catch-up without amending prior returns.

Question 6

Can I do a cost seg on older properties I've owned for years?

Accepted Answer

Yes! You can still capture the benefit of cost segregation via a “look back” analysis. This process involves filing a Form 3115 with your next tax return and allows you to “catch up” on any depreciation deductions you missed by not doing the cost segregation study in year 1. This is very common.

Question 7

Will a cost seg study trigger an IRS audit?

Accepted Answer

Cost segregation studies do not increase your audit risk when done properly. Cost segregation is an IRS-approved strategy, and we've never had a study rejected by the IRS. Our studies follow the IRS guidelines and we lead the industry with engineering-based best practices. A poor quality or inaccurate study is what can increase the risk of an audit or cause issues during an audit.

Question 8

Do you provide audit protection?

Accepted Answer

Yes, we provide lifetime audit protection. If the IRS questions any aspect of our cost segregation study, we'll handle the defense at no additional cost to you. Our studies follow all current guidelines and we've never had a study rejected by the IRS.

Question 9

How does your savings estimator work?

Accepted Answer

Our estimator leverages over 20 years of experience to estimate the cost seg reclassification percentage for different property types. With this information, we apply the various depreciation schedules by tax category to provide an estimate of your year 1 and first 5 year depreciation compared to traditional straight line methodologies.

Question 10

Can I prepare a cost segregation study myself?

Accepted Answer

The IRS has an Audit Technique Guide , where it describes the best practices for a cost segregation report that will be accepted by the IRS during an audit. The IRS explicitly states that a cost segregation expert should conduct the study and create the report, and that significant construction and engineering experience is required (See page 35).

Purchase price for a short term rental	$1,000,000
% allocated to land (not depreciable)	20%
Depreciable basis	$800,000
Reclass %	~ 25%
Bonus depreciation eligible assets	~ $200,000
Year 1 tax savings at a 37% tax rate	~ $74,000

Cost segregation is
an IRS-approved way
to reduce your taxes

Depreciation

Cost Segregation is IRS approved

Bonus Depreciation

Use Your Tax Savings To

Cost Seg Example

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Cost segregation is an IRS-approved wayto reduce your taxes