Cost Segregation
Cost Segregation Analysis in the News
Cost segregation studies are in the news recently due to the Peco Foods, Inc. v. the IRS court case, wherein the tax court upheld the IRS’ denial of Peco Foods’ reclassification of assets identified by a cost segregation study.
Late last year, another cost segregation study ran into trouble with the IRS in the case of Ronald Pearce and Daryl Pearce, Plaintiffs, v. Department of Revenue, State of Oregon, Defendant. Since one of the big advantages of a cost segregation study is the supposed approval by the IRS, some folks may be wondering if a cost segregation study is still an appropriate way to reduce tax liability and create additional cash flow.
‘Tis the Season for Cost Segregation Studies
Tax Season Cost Segregation Studies: Several CPA firms in the Sacramento area have contracted with me this year to do Cost Segregation Studies not only for their own real estate, but also to provided these tax-saving studies for their clients. So far this tax season I’ve looked at law offices, food processing facilities, optometrist offices, CPA complexes, optics labs, agricultural properties, and a variety of rental office complexes—all of these business owners will benefit from tax savings when they submit their cost segregations studies to the IRS.
Sacramento Equipment Appraiser’s Vacation: No Busman’s Holiday
From August 28 until September 13, our Sacramento area equipment appraisal office was shockingly quiet. No electronic humming of computers and printers, no out-going phone calls, no inter-office chatting, no consulting or report composing. No farm equipment down in Modesto or rolling stock up in Yuba City got appraised, no proposals for cost segregation studies for Sacramento office complexes got mailed out, not even a Subject Asset list for a Marin County restaurant or an Elk Grove print shop was reviewed. Nada. Ziltch. Nothing.
Not one single USPAP Equipment Appraisal Report or Qualified IRS Cost Segregation Study left the office in a crisp white envelope.
Agricultural Cost Segregation Studies: What’s Available for Depreciation?
Agricultural Cost Segregation Studies are the up & coming smart tax move here in the Sacramento Valley, agricultural center of California. And it’s about time: Although cost segregation studies have been available for decades, they’ve only recently hit the mainstream. Agriculture business folks in Northern California are realizing what a great benefit these studies can be to their bottom line.
The general concept of Cost Segregation Studies, in which personal property—such as removable flooring, plumbing and electrical components connected to personal property—are segregated from the real property of foundations, walls and other structural components, works well for properties such as office complexes, apartment buildings, single-family rental units, manufacturing plants or shopping malls.
Cost Segregation Studies & CPAs/Tax Preparers
While owners of income-producing property are the folks who benefit financially from Cost Segregation Studies, their CPAs and Tax Preparers can benefit as well. When a CPA/Tax Preparer recommends a Cost Segregation Study to a client who reaps a substantial tax refund, the CPAs/Tax Preparer looks like a Superhero!
I’ve talked to my own tax preparer about this; he invited me to speak to his staff about Cost Segregation Studies. Spent some time working up a concise slide presentation to add some visual interest to the presentation and realized that the points are very simple:
Cost Segregation Studies Save Taxes
Cost Segregation Studies could save Sacramento and Northern California business owners thousands–even hundreds of thousands–of dollars in taxes if they own their facilities. Most of these business owners, however, don’t seem to know about Cost Segregation Studies. Why do I say that? Because every time I mention the advantages of a Cost Segregation Study to an owner of income-producing facilities, whether in Sacramento, Stockton, San Francisco or Yuba City, I get a puzzled look, the same look you might get if you asked for a “pop” in San Francisco. Or sometimes I get that other puzzled look, the one that means, “I think I’ve heard of that … but I’m not sure what it is … and I’m not sure it’s a good idea for my facility.”
Proposed Update of Valuation Terms
In April, the American Society of Appraisers released a proposal to update the current Definitions of Value approved by the Machinery & Equipment Committee and the American Society of Appraisers Board of Governors.
Over the next few blogs, I’ll share the entire definition list, but today I’d like to concentrate on 2 areas that caught my attention right away:
The first thing I noticed was the insertion of the term “opinion” in most of the definitions.This makes a lot of sense as valuation is not an absolute measurement of value but one arrived at through research and, in the words of former PCAOB Chief Auditor Thomas Rays, “the appropriate application of seasoned professional judgment.”
