Cost Segregation Studies

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Cost segregation studies

Owners of commercial real estate and residential rental properties are improving cash flow and finding immediate tax savings from their business properties. They are finding these benefits from an unexpected source: The Internal Revenue Service. They are taking advantage of the significant tax benefits from accelerated depreciation deductions for commercial properties supported by more than 200 court cases, treasury regulations and IRS revenue rulings.

Property owners typically depreciate their building construction, renovation or acquisition costs over 39 years (commercial property) or 27.5 years (residential rental property).

Cost segregation studies we prepare are the IRS-sanctioned techniques allowing commercial property owners to accelerate depreciation on their facilities to 5, 7- and 15-year schedules. According to the IRS guidelines, a properly performed cost segregation study is based on a detailed engineering analysis. The analysis involves a thorough review of engineering and architectural documents, cost data, AIA Documents, as well as an on-site inspection of the property. These studies allow property owners to get the most out of their facility and maximize the tax benefits available to increase cash flow. Check out the IRS's Audit Technique Guide to Cost Segregation Studies - we meet or exceed IRS guidelines when we prepare a study maximizing the tax benefit for the property owner.

Our Process

housing charts on screen

Ross Hughes Associates has a CPA and an engineer perform a non-intrusive, detailed engineering study of a building’s walls, flooring and ceiling, plumbing, electrical, lighting, telecommunications, heating, and cooling systems. We will conduct site visits and work from cost documents and building plans. Having the building plans makes the facility walk-through more productive in identifying the maximum number of building elements that can be placed into short-term depreciable categories.

We then research Tax Court Rulings, Revenue Rulings and Revenue Procedures to establish the accelerated depreciable lives for the assets. Our thorough analysis will identify overlooked costs that may be segregated for accelerated depreciation. Finally, full documentation, savings and completed depreciation schedules will be prepared, presented to you, and submitted by us or your accountants to the IRS.

Give us a call today to arrange an appointment with one of our Cost Segregation Analysts.

What is my benefit?

If you built or bought your commercial or residential real property after 1986, it may qualify for cost segregation treatment. Your decision concerning the benefit of a study depends upon your facts which drives the benefit which must be compared to the cost of the study to evaluate your return on investment.

The facts include:

  1. Date of purchase or occupancy if constructed

  2. Address of the property

  3. Name of the owner of the property

  4. Cost excluding land

  5. Type of construction

  6. The expected marginal tax rate and tax situation of the property owner

The benefit is the net present value of the future cash flows for income taxes less the cost of the cost segregation study.

If you provide the facts, we will prepare a feasibility study for your project that will estimate the following:

  • The expected reclassification of building costs out of 39- or 27.5-year property to 15- and 5-year property.

  • The depreciation differential with a cost segregation study

  • The net present value of the estimated change in cash flows for income taxes over the life of the property

  • The fixed cost of preparing the study

You will then be in a position to properly evaluate the relationship between the cost of the project and the benefit to be derived and can then decide if the project is feasible for your facts and circumstances.

If you provide us with the facts, including a copy of your current detail depreciation schedule for the property (if available), we will provide you with the complimentary cost benefit analysis and help you evaluate the feasibility of the project.

All you have to do is send us:

  1. The facts above

  2. The detail depreciation schedule

  3. Your contact information

We will prepare your complimentary feasibility analysis and contact you to discuss the results. Email the information above to Brent Ross by clicking on his name to bring up a contact page.

Who can benefit from cost segregation?

  • Airports
  • Apartment buildings
  • Assisted living facilities
  • Automobile dealerships
  • Automobile service centers
  • Banks
  • Casinos
  • Cinemas
  • Day care centers
  • Department stores
  • Fitness centers
  • Funeral homes
  • Gas stations
  • Golf resorts
  • Grocery stores
  • Hospitals
  • Hotels
  • Industrial facilities
  • Laboratories
  • Manufacturing facilities
  • Marinas
  • Medical facilities
  • Mixed-use facilities
  • Nursing homes
  • Office buildings
  • Research facilities
  • Retail centers
  • Resorts
  • Restaurants
  • Service stations
  • Shopping centers
  • Sports facilities
  • Storage
  • Warehouses

Value Added

Other businesses that service property owners, such as developers, contractors, banks, mortgage lenders, real estate agents, architects, engineers, and attorneys, can also benefit by being knowledgeable about Cost Segregation studies. By recommending an analysis to property owner clients, these professionals are increasing the clients’ cash-in-hand. The likely result? Larger up-front property investments, improved existing client relationships, and increased referral business.