The rules surrounding cost segregation are a bit complicated and are easily misinterpreted, resulting in improper allocations, and possibly incorrect or unjustified positions. Luckily, we have access to court decisions as well as the Cost Segregation Audit Techniques Guide by the IRS for direction. In addition to providing thorough details on the background of cost segregation, depreciation, and landmark court cases, this guide contains 13 rules that outline the requirements for how a Quality Cost Segregation Study should appear to be. At Parr & Ibarra, we have created a simplified procedure that makes it easier to understand the complex rulings of the courts, IRS regulations, and steps to be taken to meet Quality Cost Segregation requirements. Here, you’ll find out more details of our Cost Segregation process and how we work to achieve your goals on time!
1. Make Contact With Our Cost Segregation Team
Contact us via email or phone and let us know about your financial goals. No matter if you’re an experienced investor or are undertaking your first venture, we are there to guide you smoothly throughout the entire process.
2. Gather Property Information
The initial step of the process is to gather details about the property to come up with the benefit estimate. The variables such as the dates of purchase as well as the type of property and the location affect the amount of depreciation which can be calculated through a cost segregation study. During this phase we will also assist you better know the impact that this could have on cash flow as well as the reduction in taxes.
3. Develop Your Benefit Estimate
Next step is developing an individual benefit estimate that is high-level and personalized to assess the depreciation benefits and tax savings potential.
Our team of engineers will analyze the results of tens of thousands of cost segregation studies to calculate the depreciation that is not included and potential tax savings. We’re happy to discuss this with you as well as your CPA to help you with any questions you may have.
4. Review and Sign Your Engagement Letter
After we have reviewed the benefit estimate with you and then agree to proceed after, we will promptly prepare an engagement letter for you to sign. It will include details regarding the final building basis and any additional documents that are required as well as fees and audit defense. After signing, we’re ready to gather the other documents and launch the engagement.
5. Kickoff Meeting – Launching Your Project
At the kickoff, we will go over the remaining steps of the process, and then develop an estimated timeline for the completion. We will review all documents that are required and the process for verification on-site, access requirements while on-site as well as engineering analysis and an estimated timeline for the completion of our final document.
The meeting also gives you the chance to go over any questions left to be answered during each step of the procedure.
6. Scheduling Your On-Site Verification
When we receive the necessary documentation, our engineers will go through the documents provided and respond to any queries. Once they’ve approved the documents, they will then give us the green light to plan your verification on-site. While the duration of time on-site varies, it can range from 3 hours to several days (for large apartment complexes and commercial structures).
We’ll work with you to get access to every area of the property such as storage areas, closets, maintenance areas, garages etc. If there is a property manager who works on-site, we will collaborate with them to gain access to the areas that are secured. Our procedure has been vetted and refined through many cost separation studies. We place a high priority on speed and efficiently through every room to ensure that there is no disruption to your business operations.
7. Completing Your On-Site Verification
On-site, we will take photographs and take measurements of all areas that make up the home. This covers the exterior (structure and site enhancements) and the interior (all rooms that are used for storage, electrical, garages and maintenance).
In each space, the measurements will be recorded and documented. Everything from furniture floorings, wall coverings, cabinetry, electrical, water, HVAC, ceiling items, etc.
8. The Magic of Engineering Analysis
Incorporating the data provided by the on-site, public records, building information as well as market information, the Engineering team gets to work.
A thorough investigation of the property including underground improvements to the site as well as building materials and structural components is done. This information as well, along with the inventory of the property and photographs, are compiled to create a comprehensive picture about the house.
The total value (or basis) for the home is assigned to each asset identified in the research on a comparative basis. This is the beauty of engineering, since the analysis blends the cost data from the beginning and asset value using the procedures permitted by the IRS guidelines and court decisions.
9. Legal Analysis
When the engineering analysis has been completed, we then review each property element to determine the appropriate class life. After thoroughly examining the legal aspects of the classification of assets, we can identify which elements of a house are eligible to be depreciated at a faster rate under IRS guidelines. The correct assignment of class lives to assets is a time-consuming and crucial method of separating personal properties, land improvements and structural elements.
10. Final Report Review and Approval
We will go over the report with you to confirm that the identified assets are accurate and owned. In the event changes are required, these will be sent back to the engineering team to make corrections prior to finalizing and approving the report.
