Steps to Complete a Cost Segregation Study

The first step is to engage with a Engineering Based Cost Segregation company that can assist you and your Tax Professional with the application and comply with the IRS Audit and Techniques Guide. Here are the following steps involved in preparing and applying a cost segregation study to a real estate investment property:

1. Gather property information: Collect all relevant information about the property, including construction drawings, invoices, blueprints, inspection reports, appraisals, surveys, purchase documents, cost details for improvements made and any other relevant documentation that relates to your property.

2. Your Cost Segregation specialist will conduct a site visit and physical inspection and review all property-related documents.

3. The Cost Segregation provider will review the property and information and identify all assets that are eligible for accelerated depreciation, such as carpeting, lighting, plumbing fixtures, and certain types of equipment.

4. Cost will then be assigned to those assets. Once those assets have been identified, your provider will assign costs to each asset based on its purchase price or construction cost respecting current engineering guidelines and protocols.

5. Classify assets: The Cost Segregation Provider will classify each asset into the appropriate depreciation category based on its useful life and other factors. Certain assets can then be depreciated over a shorter period of time. Once this breakdown is complete you will have 5-year property, 7-year property, 15-year property or 27.5-year property.

6. Once all assets have been identified, assigned costs, and classified, the cost segregation specialist will calculate the depreciation for each asset based on its depreciation category.

7. Once the study has been completed, your provider will prepare a detailed cost segregation report that summarizes the results so that your Tax Professional can apply it towards your Tax Return.

8. The property owner can then apply the results of the Cost Segregation study, in a way that maximizes their Tax Savings and aligns with their investment strategy. The owner can opt out or in of Bonus Depreciation (if available), and use the reports to maximize expensing of the expenditures done to the property in future years.

It's important to note that cost segregation studies, although great, may not work for everyone. A qualified cost segregation specialist can help ensure that the study is performed accurately and that the property owner maximizes the tax benefits of accelerated depreciation.

Do you have questions you would like answered? Click here to book a no obligation call.