Frequently Asked Questions
Q?
What does the IRS say about Cost Segregation?
A.
Reading
the IRS' ATG
(click here to open in a new window) is an excellent overview
of the validity of cost
segregation. See our
Cost Segregation Links page for even more relevant references.
Here are some IRS quotes: "In order to compute
depreciation using proper class lives and
recovery periods, assets must be assigned to the
proper asset classes. Cost segregation studies
generally produce listings or groups of assets,
based on asset classes under ACRS (Accelerated
Cost Recovery System) or MACRS (Modified
Accelerated Cost Recovery System)." "In order to
calculate depreciation for Federal income tax
purposes, taxpayers must use the correct method
and proper recovery period for each asset or
property owned. Property, whether acquired or
constructed, often consists of numerous asset
types with different recovery periods. Thus,
property must be separated into individual
components or asset groups having the same
recovery periods and placed-in-service dates in
order to properly compute depreciation."
Q?
Can Cost Segregation be done on properties acquired a number of years ago?
A.
IRS
rules have been amended so owners can correct
the tax lives for assets placed in service back
to 1987. We do individual cost segregation studies for older
buildings and also correct the tax lives for
Furniture, Fixtures and Equipment (FF&E) which
may have been improperly classified in prior
years on the depreciation schedules.
These accounting method change projects, often called “catch-up” depreciation studies, can involve a combination of many individual cost segregation studies and purchase price allocations. The result of our cost segregation studies can be taken as a one year lump sum adjustment on the corporate tax return. No amended tax returns need be done. We perform the entire analysis and provide a self-contained, ready-to-use product, including a written report listing methodologies used and detailed cost spreadsheets formatted for attachment to the Form 3115. Griffin Valuation Group, Ltd. can evaluate your entity and provide a free assessment of the merit of a study prior to your engaging us.
These accounting method change projects, often called “catch-up” depreciation studies, can involve a combination of many individual cost segregation studies and purchase price allocations. The result of our cost segregation studies can be taken as a one year lump sum adjustment on the corporate tax return. No amended tax returns need be done. We perform the entire analysis and provide a self-contained, ready-to-use product, including a written report listing methodologies used and detailed cost spreadsheets formatted for attachment to the Form 3115. Griffin Valuation Group, Ltd. can evaluate your entity and provide a free assessment of the merit of a study prior to your engaging us.
Q?
Is Cost Segregation Legitimate or is it a Crazy Tax Shelter?
A.
Cost Segregation is NOT new and was not invented
in 1993 or 1996 as you often see on the internet!
Griffin Valuation Group's specialists began doing cost segregation studies in the mid-1980’s when it was then called the Investment Tax Credit. It has been around for over 50 years! In fact the primary guideline for tax lives and depreciation is dated 1987.
All for-profit, income-producing properties are directed by the IRS to take advantage of accelerated depreciation on their assets according to the IRS's own guidelines. Please see our Links page for a few of the IRS publications on how property should be depreciated using the various class lives rather than placing an entire construction project or acquisition into a long, 39-year, tax life.
It was not until 2004 that the IRS published its internal Cost Segregation Audit Guide solely for its auditors due to the increased use, and MISUSE that still occurs to this day by many cost segregation "experts" doing the studies without any Big-4 accounting firm experience or training.
The IRS Audit Techniques Guide thoroughly explains the process and legal framework we use in order to comply with IRS standards. (See our Cost Segregation Links page) The current guidelines we base our cost segregation and depreciation analyses on for the appropriate tax lives were published back in 1987 -- Revenue Procedure 87-56 -- for use by property owners and accountants for their tax depreciation calculations. In addition, there are hundreds of tax court cases and letter rulings that provide a basis for these analyses.
Not a lot has changed in how we've done cost segregation since the MACRS inception in the Tax Reform Act of 1986 except for some occasional case law and rulings throughout the years. The biggest and most exciting change for all taxpayers was Revenue Procedure 96-31 where the IRS began allowing everyone to correct the depreciation on assets dating back to 1987 when they had never in the past taken advantage of a cost segregation analysis and/or had incorrectly depreciated assets.
We continue to use the same proven methodology that we helped develop for Fortune 500 companies while with the Big-8 accounting firms back in the 1980s. We were taught by the best and we are proud to carry that great experience with us today !
Griffin Valuation Group's specialists began doing cost segregation studies in the mid-1980’s when it was then called the Investment Tax Credit. It has been around for over 50 years! In fact the primary guideline for tax lives and depreciation is dated 1987.
All for-profit, income-producing properties are directed by the IRS to take advantage of accelerated depreciation on their assets according to the IRS's own guidelines. Please see our Links page for a few of the IRS publications on how property should be depreciated using the various class lives rather than placing an entire construction project or acquisition into a long, 39-year, tax life.
It was not until 2004 that the IRS published its internal Cost Segregation Audit Guide solely for its auditors due to the increased use, and MISUSE that still occurs to this day by many cost segregation "experts" doing the studies without any Big-4 accounting firm experience or training.
The IRS Audit Techniques Guide thoroughly explains the process and legal framework we use in order to comply with IRS standards. (See our Cost Segregation Links page) The current guidelines we base our cost segregation and depreciation analyses on for the appropriate tax lives were published back in 1987 -- Revenue Procedure 87-56 -- for use by property owners and accountants for their tax depreciation calculations. In addition, there are hundreds of tax court cases and letter rulings that provide a basis for these analyses.
Not a lot has changed in how we've done cost segregation since the MACRS inception in the Tax Reform Act of 1986 except for some occasional case law and rulings throughout the years. The biggest and most exciting change for all taxpayers was Revenue Procedure 96-31 where the IRS began allowing everyone to correct the depreciation on assets dating back to 1987 when they had never in the past taken advantage of a cost segregation analysis and/or had incorrectly depreciated assets.
We continue to use the same proven methodology that we helped develop for Fortune 500 companies while with the Big-8 accounting firms back in the 1980s. We were taught by the best and we are proud to carry that great experience with us today !
Q?
Has my CPA already done this for us?
A.
IRS
guidelines for Cost Segregation studies
recommend an "engineered" approach coupled with
real estate tax accounting expertise needed
regarding federal taxes and depreciable lives. Most CPAs are understandably either too busy or
not fluent in the detailed specifics of cost
segregation nor how to appraise the land and components using Fair Market Value
methodologies.
Only the largest of the accounting firms employ their own dedicated team with the required combination of valuation and accounting expertise, appraisers, and construction cost engineers in-house. Most accounting and cost segregation companies subcontract to a handful of specialist firms such as ours so there is overhead and commissions built in most often. Griffin Valuation Group, Ltd. is comprised of experts in cost engineering, appraisal, valuation, and tax depreciation -- therefore all the expertise needed is in one place to work in conjunction with your own tax accountants. We do not want to take the place of an owner's CPA firm, but rather we welcome the opportunity to work with them to ensure all of the assets are depreciated properly.
Only the largest of the accounting firms employ their own dedicated team with the required combination of valuation and accounting expertise, appraisers, and construction cost engineers in-house. Most accounting and cost segregation companies subcontract to a handful of specialist firms such as ours so there is overhead and commissions built in most often. Griffin Valuation Group, Ltd. is comprised of experts in cost engineering, appraisal, valuation, and tax depreciation -- therefore all the expertise needed is in one place to work in conjunction with your own tax accountants. We do not want to take the place of an owner's CPA firm, but rather we welcome the opportunity to work with them to ensure all of the assets are depreciated properly.
Q?
Will Cost Segregation Lower Our Property Tax Assessments?
A.
NO!! If a
salesman or cost segregation engineer tells you
their cost segregation report will lower your property tax
assessments and payments - run far away... quickly.
You can have a high risk of double taxation if a cost segregation report is used for assessment purposes. The rules of real vs. personal property and taxable vs. exempt vary from state to state.
Most all states do not follow the same rules as federal income tax on what is real estate vs. personal property; therefore, a cost segregation analysis should never be provided to an assessor for use on local property tax assessment purposes and should never be used for a personal property tax return. It is simply not apples and apples.
While performing a Cost Segregation analysis we have the expertise to check the local property tax assessments to see if the property is placed on the assessors' tax rolls properly and fairly. If the assessment is found to be inaccurate, we can be engaged by you to appeal the assessments to ensure the property is taxed fairly and accurately based on a low contingency fee of 1st year savings achieved. Griffin Valuation Group has experts in property taxation, valuation, appeals and tax compliance throughout the U.S.
You can have a high risk of double taxation if a cost segregation report is used for assessment purposes. The rules of real vs. personal property and taxable vs. exempt vary from state to state.
Most all states do not follow the same rules as federal income tax on what is real estate vs. personal property; therefore, a cost segregation analysis should never be provided to an assessor for use on local property tax assessment purposes and should never be used for a personal property tax return. It is simply not apples and apples.
While performing a Cost Segregation analysis we have the expertise to check the local property tax assessments to see if the property is placed on the assessors' tax rolls properly and fairly. If the assessment is found to be inaccurate, we can be engaged by you to appeal the assessments to ensure the property is taxed fairly and accurately based on a low contingency fee of 1st year savings achieved. Griffin Valuation Group has experts in property taxation, valuation, appeals and tax compliance throughout the U.S.
Q?
Which Properties are good candidates for Property Tax Reviews and What are the Fees?
A.
For
Property Tax Compliance and Reductions, we
specialize in commercial and industrial
properties with an annual tax bill greater than
$60,000 per location. Our fees are based on a percentage of
the first year tax savings we achieve for you.
No Reduction? Then No Fees!
Please send us an email with your parcel numbers and addresses and we can provide an engagement letter with our fee. GVG works throughout the U.S. in every state except five that require and attorney or special license.
NOTE: we do not work on personal residential houses.
No Reduction? Then No Fees!
Please send us an email with your parcel numbers and addresses and we can provide an engagement letter with our fee. GVG works throughout the U.S. in every state except five that require and attorney or special license.
NOTE: we do not work on personal residential houses.