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How Much Does a Cost Segregation Study Cost?

The cost to complete a cost segregation study depends on the scope of work and amount of time required to complete a quality study. CostSegRx uses the detailed engineering approach on all studies. Small residential studies start at $625. Large residential, multifamily and commercial projects require a custom quote.

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Small Residential

$625 +

1-4 Units

Multifamily

Custom Quote

5+ Units

Commercial

Custom Quote

All Assets Classes

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Fixed Asset Review

Your Fixed Asset Schedule is also known as your Depreciation Schedule. It's important that you review your fixed asset schedule with your tax preparer prior to filing your first year of tax returns. You want to make sure that you have the correct building basis, land allocation, in-service date and any capital improvements that you've made to the property.

Detailed Engineering:

CostSegRx utilizes the Detailed Engineering Cost Estimate Approach and the Detailed Engineering Approach From Actual Cost Records.

Our cost segregation studies performed meet the requirements of a Quality Cost Segregation Study per the Cost Segregation Audit Technique Guides and the Minimum Quality Standards per the American Society of Cost Segregation Professionals.

Audit Support

Audit support includes defending the results of a Cost Segregation Study, such as the property classifications and accelerated depreciation schedules. It ensures that the methodology and findings of the study meet IRS standards, thus minimizing the risk of adjustments or penalties.

  1.  Document Review: Gather and review cost segregation reports, receipts, and relevant tax documents.
  1.  Expert Representation: Engage with auditors and explain technical details.
  1.  Defend Study Results: Justify asset allocations and ensure compliance with IRS guidelines.
  1.  Full Audit Support: Address questions, prepare responses, and participate in meetings.

Having audit support from a reliable provider is critical, as it helps ensure that the study can withstand a careful and detailed examination, giving the property owner confidence that their tax benefits are secure.

Free Adjustments

Free adjustments refer to the complimentary service offered to update or modify the study’s findings without additional charges.

  1. Change in Property Usage:
    • Property renovations or modifications that alter its components, such as adding new assets (e.g., HVAC systems) or structural changes, the cost segregation study may need to be adjusted to account for these updates.
  2. Reclassification of Assets:
    • Due to changes in IRS regulations or updated guidance, certain assets may need to be reclassified to a different depreciation category.
  3. Correction of Minor Errors:
    • If any discrepancies or minor errors are found in the initial report, the corrections are free to maintain accuracy and customer satisfaction.
  4. New Tax Planning Strategies:
    • Property owners may decide to adopt new tax planning strategies that affect how they want their property’s assets to be depreciated. In such cases, free adjustments are offered to align with these goals.

CPA Assistance

Providing Certified Public Accountants (CPAs) with the necessary support, resources, and expertise to integrate the findings of a cost segregation study into a client’s tax return. Ensuring that the CPAs fully understand the technical details and proper application of the study results.

What CPA Assistance Includes:

  1. Detailed Report and Analysis:
    • Providing the CPA with a comprehensive cost segregation report that includes all the breakdowns of property components, asset classifications, and depreciation schedules.
    • Supplying a clear summary and analysis of the study, making it easier for the CPA to review and utilize the information for tax filing purposes.
  2. Depreciation Schedule Integration:
    • Assisting the CPA in integrating the accelerated depreciation data into the property owner’s tax software.
    • Explaining which assets should be classified as 5-year, 7-year, 15-year, or 27.5/39-year property based on IRS guidelines.
  3. Tax Strategy Consultation:
    • Collaborating with the CPA to strategize on the best ways to leverage the cost segregation findings.
    • Providing guidance on how the cost segregation impacts other tax provisions, such as the Section 179 deduction, bonus depreciation, or qualified improvement property (QIP) rules.
  4. Responding to CPA Queries:
    • Addressing any questions the CPA may have about the cost segregation methodology, specific asset classifications, or tax regulations.
    • Clarifying technical details to ensure the CPA has full confidence in using the study results.
  5. Compliance and Audit Support:
    • Assisting the CPA with documentation and preparation if the client’s cost segregation results are questioned during an audit.
    • Providing any additional supporting documents or information the CPA needs to substantiate the study’s findings to the IRS.

 

481(a) Adjustments

An accounting mechanism used by the IRS when a taxpayer changes their accounting method, such as when implementing a cost segregation study for the first time. The purpose to ensure there is no duplication or omission of income due to the change in how income or expenses are recognized.

It helps to catch up the difference between the two methods by either increasing or decreasing the taxpayer’s taxable income in the year of the change.

When a cost segregation study is performed, certain assets are reclassified from a longer depreciation life (27.5 or 39 years for real property) to a shorter one (5, 7, or 15 years for personal property or land improvements). This reclassification creates a significant change in depreciation expense.

  1. If the Adjustment is Positive (+):
    • A positive 481(a) adjustment means that the taxpayer has previously taken too little depreciation under the old method. Therefore, an additional deduction (catch-up) is allowed in the current year to make up for the missed depreciation.
  2. If the Adjustment is Negative (-):
    • A negative 481(a) adjustment means the taxpayer has taken too much depreciation previously. Thus, income must be increased to offset the excess depreciation taken in prior years.

Benefits of a 481(a) Adjustment:

  1. Immediate Tax Savings:
    • A positive 481(a) adjustment results in a large, one-time deduction that can significantly reduce the taxpayer’s taxable income in the year of change.
  2. No Amended Returns:
    • The adjustment is reported on the current year’s return, so there is no need to amend prior-year tax returns. This simplifies the process and avoids reopening old tax filings.
  3. Enhanced Cash Flow:
    • The catch-up adjustment often results in substantial tax savings, enhancing cash flow that can be reinvested in the business or property.

Form 3115 Attachment

A detailed supporting document that must be included when a taxpayer files Form 3115 (Application for Change in Accounting Method) with the IRS. This form and its attachment are necessary when a business or individual wants to change their accounting method, such as switching depreciation methods after performing a cost segregation study.

Form 3115 is used to request IRS approval to change the accounting treatment of various items, such as:

  • Depreciation methods (e.g., switching from straight-line to accelerated depreciation).
  • Reclassifying asset categories (e.g., changing from 39-year property to 5-year or 15-year property).

The Form 3115 Attachment is a critical part of this application, as it:

  1. Details the Specifics of the Accounting Change:
    • Clearly identifies the old and new accounting methods.
    • Explains the reason for the change (e.g., performing a cost segregation study to accelerate depreciation).
  2. Calculates the 481(a) Adjustment:
    • If applicable, it calculates the cumulative effect of the accounting method change (known as a 481(a) adjustment) and shows how it was derived.
    • The 481(a) adjustment ensures no income or expense is duplicated or omitted due to the change.
  3. Provides Technical and Legal Justification:
    • Cites relevant IRS regulations, revenue procedures, and tax codes to justify the change.
    • Describes how the proposed change complies with IRS rules and why it is beneficial for the taxpayer.
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