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"A cost segregation study is a tax and engineering analysis of any real estate, including leasehold improvements. It is designed to accelerate the tax deductions for depreciation by reclassifying eligible assets to shorter recovery periods.

TOM VARNEY
Engineer - Madison SPECS

FAQs

What does a Cost Segregation study entail?

Depending on the type of project, we review site surveys, blueprints, construction drawings and specifications. Additionally, we review general contractor, architect/engineer and private vendor invoices and change orders when applicable. We also perform a comprehensive review of all relevant financial records. We tour the facility and take photos to document critical issues; we also interview key personnel. We then identify and reclassify all eligible assets to shorter recovery periods with the goal of accelerating your tax depreciation deductions.

How much does a Cost Segregation study cost?

There is no charge for the initial assessment. If our assessment indicates that a Cost Segregation opportunity exists, we will provide you with a written fee estimate. Our fees depend on the size and scope of the project. Your tax savings generally greatly exceed our fees, and depending on the situation, you may recover the cost when you make your next quarterly payment or file your tax return.

Are Cost Segregation studies a good investment?

We don't commit to performing a Cost Segregation study without providing you a free initial assessment and cost proposal. From that, you and your accountant can evaluate the cost versus savings factors up front.

Why hasn't my CPA told me about this?

Although your accounting firm may be aware of Cost Segregation as a concept, it's unlikely that they have the in-house expertise required to conduct a Cost Segregation study for you. Accountants may be able to capture some of the tax deductions but most don't have the engineers on staff to inspect the property, examine the architectural and engineering documents and analyze the cost data.

Do these studies raise red flags with the IRS?

Engineering-based cost segregation studies are accepted by the IRS for reclassifying assets in order to accelerate tax deductions for depreciation. Our experienced engineers have conducted hundreds of successful cost segregation studies. They apply the most current interpretations of IRS regulations, ensuring that our studies withstand auditing scrutiny.

What types of property are suited for Cost Segregation studies?

Madison SPECS can find eligible assets in:

  • facilities built or bought since 1986
  • newly constructed, renovated or expanded facilities
  • facilities with significant construction in progress
  • inherited properties
  • For existing properties, you can recapture "missed" depreciation for previously understated deductions with a simple change in accounting method, which Madison SPECS can help you file.

What makes Madison SPECS different from other Cost Segregation firms?

Most companies in the Cost Segregation business conduct studies that emphasize either the tax approach or the engineering approach. What differentiates Madison SPECS from these companies is that we truly integrate the two approaches:
  • Engineering expertise
    • Our in-house engineers assess the eligible assets and determine their cost using widely accepted sources of construction cost information, such RS Means.
  • Tax expertise
    • We follow the most recent depreciation guidance provided by the IRS.

How does a cost segregation study increase cash flow?

In general, buildings can be depreciated over either a 27.5-year or a 39-year period, but certain categories of fixed assets within a building can be depreciated more quickly through cost segregation. Through this accelerated depreciation, an income tax benefit is created thereby generating increased cash flow.

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