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Frequently Asked Questions About Cost Segregation (Madison SPECS)

By
Title Insurance with Real Estate and Marketing

Additional information can be gleaned from our new website www.madisonspecs.com

1. What is the benefit of a cost segregation study?

A cost segregation study generates an immediate tax benefit in the form of increased tax deductions for depreciation. Increased deductions mean lower tax payments. And, that means money in your pocket today. To most people, a dollar today is worth more than a dollar tomorrow. So, too, a tax deduction today is worth more than a tax deduction in the future.


 

2. How much should I expect to save?

Typically, cost segregation studies generate savings of about four percent or more of the asset cost. For example, a $5 million property, assuming a four percent benefit, should generate about $200,000 in tax savings. Savings of anywhere from $50,000 to $1 million, or more, are not uncommon to owners.

 

3. Why hasn't my accountant told me about this?

Cost segregation is a highly specialized tax planning discipline that requires a combination of skills and expertise that most accounting firms don't have. For example, most accounting firms do not have the in-house engineering expertise required to read construction drawings, estimate costs, understand construction systems and apply IRS asset classifications to existing use.

 

4. Will I need to replace my current accountant?

No. A cost segregation study does not replace your accountant. The cost segregation study simply provides your accountant with the information necessary to calculate deductions for depreciation and prepare your tax return. And, we work closely with your accountant every step of the way.

 

5. How complicated is it to file a change of accounting method for older properties?

It's a simple matter of filing a Form 3115 along with your tax return. Madison SPECS will give you the information you need to file the form, or work with your accountant to complete it.


 

6. What happens if the IRS challenges the asset classifications resulting from the study?

In the event of an IRS audit, we will defend our results. We feel confident that the IRS will accept our results because we:

  • Follow the most recent depreciation guidance provided by the IRS (for example, IRS Audit Technique Guide, 2005), and
  • Provide you with extensive supporting documentation


 

7. How much does a cost segregation study cost?

There's no charge for the initial assessment. If our assessment indicates that a cost segregation opportunity exists, we will give you a written fee estimate. Our fees depend on the size/ scope of the project.

Generally, we find that your tax savings 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.


 

8. How long does a cost segregation study take?

The time required to complete a study depends on the size/scope of the project and the volume/quality of available documentation.

 

9. Can a tenant benefit from a cost segregation study?

Yes. If you have paid for leasehold improvements and are currently depreciating them, cost segregation may create tax benefits for you similar to those it offers for property owners.

 you can also take a look at the IRS' Audit Technique Guide: http://www.irs.gov/businesses/article/0,,id=134180,00.html

If you would like more info. please email srosensweig@madisonspecs.com or check our website www.madisonspecs.com

Looking forward to serving your real estate needs.

Simon.

Comments (4)

Simon Rosenzweig
Real Estate and Marketing - Lakewood, NJ

You can download a Cost Segregation Case Study which we just put together off of our website www.madisonspecs.com . It will give you a "real feel" of what a Cost Segregation Study is all about, as well as an idea of the potential tax benefits for you.

I want to bring to your attention that we perform a feasibility analysis, at no cost to you. What this means is that we will provide an analysis for your investment property on our dime, which will show you the potential tax benefits that you will receive by having the study performed.

 If you have any questions regarding the concept, please do not hesitate to contact me.

Simon Rosenzweig

srosenzweig@madisonspecs.com  www.madisonspecs.com

Jul 16, 2008 04:54 AM
Anonymous
KETOANNHATNGHE.COM

HI

THANK

Jan 05, 2011 07:33 PM
#2
Anonymous
thanh lap doanh nghiep

thank

Dec 18, 2011 04:35 AM
#3
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Oct 19, 2023 10:14 PM