Intro to Demystifying Cost Seg. (Cost Segregation)

One of the ways we deliver value to investors is to inform them of the benefits of Cost Segregation and to offer a free Cost Seg Feasibility Study. CS doesn’t apply in every situation, but the possibility of saving clients tens or hundreds of thousands of dollars is too much to pass up.

In essence, CS employs greatly accelerated depreciation on commercial real property assets. The improvements (not raw land) of a commercial real property are broken down into their components and then rated for their cost and remaining life. The building improvements are classified as either Section 1245 or Section 1250. S-1245 (basically tangible personal property) is the primary source of Investment Tax Credit savings. I will differentiate property types and the process of Cost Seg in a series of future posts.

This process is typically performed by Cost Engineers, not Cost or Tax Accountants.

Properties are normally depreciated at 27.5 years (multifamily) or 39 years (commercial and industrial improvements.) Clearly a washer and dryer have a shorter useful life and…cost seg permits depreciating that at a pace that reflects its actual remaining useful life.

Disspelling Cost Seg myths:

MYTH 1: “Cost Seg will increase my Alternative Minimum Tax payments.” Wrong! AMT will reduce the positive impact of Cost Seg slightly..but only slightly. It certainly does not increase AMT. My opinion: If I can save a lot on taxes, I’m in!

MYTH 2: “CS is not fullytested.” Wrong! There is significant case law on this item; the IRS is well aware of the provisions.

MYTH 3: “It will increase my odds of being audited.” Wrong!

MYTH 4: “CS only applies to new buildings.” Wrong! As an example, Cost Seg can be used on a recently acquired 1906 era hotel.

MYTH 5: “This is only applicable to certain types of commercial/industrial property.” Wrong!

MYTH 6: “I have to pay for the program before I know if I will enjoy savings.” Wrong! Reputable firms will provide a feasibilty study at no cost, including a conservative savings estimate.

MYTH 7: “It takes forever!” Wrong! To properly study the property for all savings available, a site visit will need to be scheduled…but this process takes days not months.

MYTH 8: Cost Seg is for Casinos and huge assets only. WRONG: In many cases Cost Seg Treatment produces savings on smaller commercial assets in the $1M range

QUALITY: Use a respected Cost Seg Specialist…just like you would use only a top tier 1031 Exchange Accomodater.

To request more information, or a no cost/no obligation Cost Seg Feasibility Study please contact:

Rick M. Bean


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