What is Cost Segregation?
Cost segregation is a powerful tax strategy that can supercharge your real estate investments. By reclassifying components of your commercial or residential property, you can accelerate depreciation and significantly reduce your tax liability. Imagine taking advantage of shorter depreciation periods for assets like fixtures, equipment, and interior finishes, allowing you to deduct more in the early years of property ownership. This means immediate tax savings and increased cash flow that you can reinvest into your property or use for other financial goals. With cost segregation, you can maximize your tax benefits while staying fully compliant with IRS regulations.
We have over 18 years of experience – tens of thousands of studies have returned billions of dollars to our clients. It’s your money, why wait?
Benefits of LINQQS Cost Segregation
As IRS-approved tax engineers, we partner with your CPA to ensure you get the maximum benefit.
Our studies have never been over-turned. We are the only cost segregation firm that includes three years of follow-up studies and audit protection.
When we engage you, we guarantee our results. Our clients typically enjoy more than 500% ROI within six months.
We Work With Virtually All Sizes Of Properties
Retail Malls & Strip Centers
R&D Frequently Asked Questions
What is a Cost Segregation Study?
A Cost Segregation Study is a strategic, tax-saving tool that can be used by companies and individuals who have constructed, purchased, expanded, or remodeled any kind of commercial real estate. The study allows the owner to take advantage of accelerated depreciation deductions and defer federal and state income taxes.
Normally, 100% of the cost of commercial real estate is depreciated over 39 years. During a Cost Segregation Study, components of a property or leasehold improvement that can be depreciated over a shorter time (5, 7, or 15 years) are identified and reclassified. For example, 30% to 90% of the total electrical costs in most buildings can qualify for 5 or 7-year depreciation.
Typical components that can be reclassified include a building’s non-structural elements, such as carpet, decorative lighting and trim, dedicated electrical and plumbing, and security systems; exterior land improvements, such as landscaping, curbs, sidewalks, fencing, and signage; and indirect construction costs, such as architect and engineering fees and construction permits. The result of a Cost Segregation Study is that a property owner’s tax obligation is reduced and cash flow is increased. flow is increased.
Is Cost Segregation something new?
Cost Segregation is not new; on the contrary, it has been in existence since 1954 when the IRS allowed for certain personal assets to be accelerated into a shorter life class. However, it wasn’t until Hospital Corporation of America sued the IRS in 1997, and won, that the IRS revisited the issue of accelerated depreciation. The IRS ruled that property qualifying as tangible personal property under the former Investment Tax Credit (ITC) rules would also qualify for purposes of federal income tax depreciation under MACRS (Modified Accelerated Cost Recovery System).
The IRS Chief Attorney wrote a memo stating “…Cost Segregation, for it to be properly applied, had to involve those with competencies in architecture, engineering or construction and/or construction techniques, in order for personal property assets to be accurately identified and segregated.” As a result of this memo, Cost Segregation became a viable tax-saving strategy allowed by the IRS.
What type of real estate is eligible?
Commercial real estate property eligible for Cost Segregation includes buildings that have been purchased, constructed, expanded, or remodeled since 1987. A study is typically cost-effective for buildings purchased or remodeled at a cost greater than $100,000. A Cost Segregation Study is most efficient for new buildings under construction, but it can also uncover retroactive tax deductions for much older buildings. Other commercial property, such as rental houses and tenant improvements are also eligible.
Why bother? I'll eventually get the deduction.
The present or future value of the money you can save by having a Cost Segregation Study is usually quite substantial. Additionally, you have access to the cash now so you can reinvest it! A Cost Segregation Study in effect gives you an interest free loan from the government for the first 15 years, which you will then repay interest free over the remaining 25 years. Wouldn’t you rather have your money? There are also advantages to doing a study if the building is going to be sold or if the owner of the building.
Is it worth the time?
Absolutely! Considering the positive impact on your cash flows or bottom line and that your assessment can typically be completed in 90 minutes (about 1 and a half hours), this is the reason why this credit scores very well on something we call the “Good to Grief Ratio” which measures the value you receive vs. the time you must put in to get that value.
How much will I save on taxes?
Your CPA can assist you in receiving a free analysis. From the information you supply, we can provide you a conservative estimate of the accelerated benefits you can expect as well as the fee proposed for the final study.
Typically, tax savings from 5% to 10% of the building’s original tax-basis is realized, but there are instances where it can be substantially more.
How much accelerated depreciation can I get?
Certain types of commercial property can be grouped together to give us an idea of the percentage of those types of buildings that have been eligible for accelerated depreciation. Your results may be greater, or they may be less than those shown below, but in general, property that falls into one of the following categories is most likely to result in accelerated depreciation within the specified ranges.
Types of Commercial Property:
Apartment Buildings 15 – 25%
Dental/Medical 30 – 60%
Health Care 25 – 65%
Heavy Manufacturing 30 – 80%
Industrial 25 – 70%
Light Manufacturing 20 – 45%
Office Buildings 15 – 25%
Research & Development Facilities 30 – 75%
Restaurant 15 – 30%
Retail Centers 10 – 25%
Senior Living Facilities 15 – 30%
Warehouse 5 – 15%
If I claim the credit, can I still expense it?
Yes! Cost Segregation can provide additional tax benefits. It can reveal opportunities to reduce real estate tax liabilities and identify certain sales and use tax savings opportunities. Under certain circumstances, segregated assets may qualify for a special bonus depreciation allowed by multiple tax reconciliation acts enacted by Congress. Additionally, a Cost Segregation Study can:
Maximize tax savings by adjusting the timing of deductions. When an asset’s life is shortened, depreciation expense is accelerated and tax payments are decreased during the early stages of a property’s life. This in turn, releases cash for investment opportunities or current operating needs.
Create an audit trail. Improper documentation of cost and asset classifications can lead to an unfavorable audit adjustment. A properly documented Cost Segregation Study helps resolve IRS inquiries at the earliest stages.
Capture retroactive savings. Since 1996, taxpayers can capture immediate retroactive savings on property added since 1987. Previous rules, which provided a four-year catch-up period for retroactive savings, have been amended to allow taxpayers to take the entire amount of the adjustment in the year the Cost Segregation is completed – this alone is huge. This opportunity to recapture unrecognized depreciation in one year presents an opportunity to perform retroactive Cost Segregation analyses on older properties to increase cash flow in the current year.