Engineering-Based Cost Segregation Studies

If you own residential rental or commercial properties, Nelson & Company CPA brings tax and in-house engineering experience to the review and analysis of your real estate holdings to provide you with a comprehensive cost-benefit analysis that could reveal previously unused depreciation deductions that can lower your tax liability and increase your cash flow.

 
With over 25 years of Cost Segregation Study experience, Nelson & Company has completed studies throughout the Western US, including New Mexico, Arizona, California, Colorado, and Texas, and has experience with projects ranging from individual investment properties to large commercial developments exceeding $150 million. Our cost segregation work is supported by in-house engineering experience and tax professionals familiar with depreciation rules, IRS guidance, and audit documentation expectations. 

Although the optimal time for a Cost Seg Study is during the year a building is constructed, purchased, or remodeled, a study can often be completed later. Current Internal Revenue Service procedures may allow property owners to claim missed depreciation through an accounting method change for property acquired as far back as 1987 without amending prior-year tax returns.

 
While it is easy to identify furniture, fixtures, and equipment (FF&E) that are depreciated over 5 or 7 years for tax purposes, a Cost Segregation Study goes far beyond that by dissecting construction costs that are usually depreciated over 27.5 or 39 years. Our team reviews building systems, construction details, site improvements, drawings, cost records, and related documentation to support the asset classifications used in the study.

 
The study carves out (into 5, 7, and 15-year lives) qualifying portions of your building that are normally buried in 39 or 27.5-year categories. This work to reduce tax lives results in accelerated depreciation deductions, reduced tax liability, and increased cash flow.  Because the analysis is engineering-based, the final report is designed not only to identify savings, but also to provide supportable documentation for you and for potential IRS review. 

Benefits of Accelerated Depreciation

 
A Cost Seg Study may allow for a significant increase in deductions within the first 5 years.  For many owners, those accelerated deductions improve after-tax cash flow and free up capital for additional acquisitions, improvements, debt reduction, or operations. 

 
For example, assuming a combined tax rate of 41% and a return on investment factor of 8%, every $100,000 of costs shifted from 39-year property to a 5-year property creates a present value tax benefit of approximately $22,000. Every $100,000 of costs shifted from 39-year property to 15-year property, creates a present value tax benefit of approximately $12,000.  We provide a free preliminary analysis so you can evaluate the likely benefit before commissioning a full study. 

Who Can Benefit?

 
Any structure used for business or as rental property is eligible for the benefits of Cost Segregation. Any leasehold improvements or renovation costs can also qualify.  Eligible properties may include multifamily communities, short-term rental and vacation rental properties, office buildings, medical facilities, manufacturing and industrial properties, hotels and other hospitality properties, retail centers, self-storage facilities, mixed-use developments, and other commercial or income-producing real estate. 

Why Nelson & Company CPA?

Nelson & Company CPA combines responsive regional service with the technical depth of an engineering-based cost segregation practice. Our in-house engineering experience, tax knowledge, multi-state project experience, and experience applying IRS guidance help property owners pursue accelerated depreciation with confidence.

• In-house engineering experience integrated with knowledgeable tax professionals
• Projects ranging from individual investment properties to developments exceeding $150 million
• Experience throughout New Mexico, Arizona, California, Colorado, Texas, and the Western U.S.
• Detailed engineering-based reports, with professionals available to support the study if questions arise from your tax advisor, the IRS, or a state tax authority
• Complimentary preliminary benefit analysis before you commit to a study