Written By: Kevin Kaaha
November 22, 2013
A Cost Segregation Study is the systematic and comprehensive analysis of all costs associated with a new construction, purchase acquisition, remodel projects or retroactive analysis (look back study). Clients and companies can receive substantial cash flow by performing a Cost Segregation Study. The objective of a cost segregation study is to maximize the available depreciation benefits by segregating and documenting the costs of all short life property in accordance with IRC Section 1245 and 1250, as well as tax regulations, court cases and guidelines. A Cost Segregation Study can identify suspect assets which qualify for reclassification, examine all associated construction documents, visit and interview key management personnel concerning specified assets, segregate qualifying property lives as defined by MACRS, recalculate tax depreciation for reclassified assets, determine the current year depreciation deduction, prepare Form 3115 and it’s supporting technical memorandum, provide a fully supportable hardcopy study that complies to IRS guidelines, and meet with the CPA to discuss the implementation, as well as the results of the study. For the Developer, Owner, CPA and their Clients, there are other important aspects. Effective Cost Segregation companies have a dedicated staff of engineers and construction estimators, private labeling of reports and knowledge that the team you’re working with has researched all IRS rulings, and court cases, related to Cost Segregation and that the team can defend an IRS audit at no cost.
The objective is to expose hidden components that are not part of the structural foundation of the building. To educate Developers, Owners and CPA’s, and their clients, about Cost Segregation tax savings strategies that dramatically increase cash flow. A Cost Segregation Study exposes costs normally hidden from view. For example, costs buried deep within a contractors monthly draw request, or even a Buyers Settlement (for acquired property) frequently go unnoticed and are placed in service as real property. As an example, did you know that a significant portion of costs, relating to the electrical contract for a construction project, can be identified as tangible personal property, even when an electrical component is considered inherently permanent? Experience shows, an additional 25% to 65% of the electrical work performed for a project can classified with a shorter recovery period and thereby transferring tax deductions into the early upfront years of ownership.
Author Bio: Kevin Kaaha is a Cost Segregation Consultant, and service provider, advising Developers, CPA’s, Attorneys, Financial Advisors, Real Estate Brokers, High Net Worth Individuals and Corporations on the process for cutting and reducing tax liabilities when performing a Cost Segregation Study. Since graduating from Santa Clara University in 1986, Kevin’s mission is to provide tax relief for business owners, building owners, corporations and high net worth individuals. Kevin’s goal is to help others realize and live their retirement dreams by leveraging decades of investments, risk and hard work.
Kevin is affiliated with, but not limited to, the following organizations:
CDI License #0D52255, CalCPA, California Apartment Association, Tri County Chapter, California Apartment Association, San Francisco and Afilliate Member of the San Jose Real Estate Investment Group.
SourceHOV / Tax