Cost SegregationWhat It Is…

How It Can Help You

Save on Tax $$$

Presented By ~ Jerry Ashton

Regional Mgr CSSI/MoneyQuest

If Cost Segregation is Foreign to You

Chances are you’re paying too much in taxes

Tens of thousands of commercial property owners overpay their taxes each year

Unaware of this tax ruling, they miss out on legally allowable depreciation expense deductions

Cost Segregation Studies Are Not New

Big 4 accounting firms have offered cost

segregation studies to Fortune 500 companies since 1997

Five years ago, Cost Segregation Services, Inc. created to deliver the same engineered-based cost segregation study, but to the middle market

Founded on Legal Decisions

Hospital Corporation of America

US Tax Court 109 T.C.21

Owed the IRS $800,000,000

Judge Tom Wells; August 24 1997

Precedent setting case for commercial property owners

The Precedent is Set

At the Tax Court, a question was posed…

Chief Counsel asked IRS Representative:

Question: “Why is it that commercial propertyowners in America do not accelerate depreciation based upon their personal property vs. thestructural part?”

Answer: “Well the Service knows that theyshould but we’re not going to tell them”

IRS Stipulation

Stipulations:

Not just any one can do these studies

Engineered cost segregation study needed

Rules and Regulations

Depreciation: The Guidelines 1986 or newer – retroactively

redefine depreciation IRS Chief Counsel : Requires Cost Segregation Study Revised Proc. 98-60 Revised Proc. 99-49/ IRC 481/ 4Years IRS Announcement 2002-37 IRS Rev. Proc. 2002-9 IRS Rev. Proc. 2002-18 IRS Rev. Proc. 2002-19/ IRC 481(a) Actual Case : Chief Counsel Advice 199921945, 5/28/99, IRS

Announcement 99-82

Cost segregated accumulated depreciationcan be applied to the current tax year

Property Candidates

• Purchased

• Constructed

• Renovated Or Remodeled

Property Analysis Summary        Location   TOTALS Project Number All 64 Properties         Cost Basis   $ 96,848,203  

  

        Tax Year   2007 2010        Current Method            Accumulated Depreciation Reported    

27.5 year straight line method $ 13,667,163 $ 21,804,336 39 year straight line method $ 1,529,438 $ 3,240,312

        Alternative Method            Cost Segregation Study Accumulated Depreciation      5 yr.   $ 14,752,702 $ 18,373,450   7 yr.   $ 1,067,904 $ 1,379,612   15 yr.   $ 3,188,944 $ 4,854,370

  27.5

yr.   $ 9,389,407 $ 15,199,057   39 yr.   $ 1,160,394 $ 2,493,872   Total   $ 29,559,351 $ 42,300,361         Results for Tax Year 2007 2010 Increased Accumulated Depreciation Expense $ 14,362,750 $ 17,255,713 Tax Rate (Estimated) 40% 40% Estimated Accumulated Tax Savings Benefit $ 5,745,100 $ 6,902,285

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All Property Analyses

Microsoft Office Excel Worksheet

Cost Segregation

5 7 15

27.5 - 39

Acceleration…..

Carry Back or Forward

Carry Back or Carry Forward

Allows for carry-back (5 years), or carry-forwardof accumulated depreciation expense

$200,000 depreciation expense $100,000 taxable income Taxable loss $100,000 Take the loss in two ways Carry it back 5 years or forward until absorbed Bring forward: Change in Accounting Form 3115 Automatic approval protocol IRS: no filing fee

5 Year Examples

• Moldings/Interior Doors

• Flooring-Carpet/Vinyl Tile

• Specialty Plumbing

7 Year Examples

• Canopies/Awnings

• Kitchen Equipment – Char Broiler

• Laundry Equipment

• Walk-in Cooler and Freezer

15 Year Examples

• Sidewalks

• Flagpole

• Fencing

AICPA, Cost Segregation Applied

“Cost segregation can provide real estate purchasers with tremendous tax benefits from accelerated depreciation deductions

and easier write-offs when an asset becomes obsolete, broken or destroyed.”

~Jay A. Soledad, JD, LLM and Charles E. Falk, CPA, JD

Why Don’t Most CPAs Offer Cost Segregation Services?

• Unlikely that they have within the firm the engineering expertise that is necessary to perform the specialized analysis of both the inside and outside of the building.

• Risk – for CPA as well as for client

The Practicing CPA

“A good relationship with an established, experienced cost segregation provider is

important so that, if the IRS inquires about a cost-segregation study three or more

years down the line, the provider is willing and able to stand behind the work.”

~William J. Barnes, CPA, CFP, CDFA, MST

1-2-3

Receive Sample Analysis From Engineers

Review With Client And Order Survey

Receive CompletedCost Seg Survey and Apply to Financials

Result - Reconciliation Of Total Allocated Costs To Total Actual Costs

• Total allocated costs are reconciled to total actual costs in order to ensure the accuracy of all allocations

• Considers and lists separately-acquired 1245 property to prevent possible duplication

• Same estimating technique are used on all of the items

Careful Identification And Listing Of Section 1245 Property

• Lists 1245 property (including amounts)

• Shows any 1250 property reclassified to 1245 property 

Putting It All Together

CPA CSSI

A Dime For A Dollar?

Contact Us For A No Cost ReviewJerry Ashton at 212-982-2152

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