Accelerate depreciation on commercial building to improve Cash Flow.

1. Discover Powerful, Underutilized, Tax-Saving Strategies for
Commercial and Investment Real Properties.
What is Cost Segregation?
The principle goal of a cost segregation study is to increase cash flow from
constructed buildings, purchased properties and renovations by
accelerating depreciation expense deductions.
Through this analysis, the components of a building are reclassified into
proper class “lives” according to government legislation, case law, and IRS
revenue rulings/procedures.
Substantial tax savings can be achieved by
accelerating depreciation deductions.
Would you rather receive your money back today…
or in 39 Years?
Identify all construction related costs that can be depreciated over 5, 7,
and 15 years and reclassifying from 39, 31.5 and 27.5 years.
Moving reclassified items to Personal Property from Real Property.
Reducing Tax Lives results is accelerated depreciation deductions, a
reduced tax liability, and increased Cash Flow.
IRS approved “look back” study allows for catch-up capturing of
reclassified depreciation , generating possible current refunds.
Free up money for investment allowing compound growth.
Added flexibility when conduction demolition or remodeling in
involved.
Reduces real estate property taxes
Increases Cash Flow for maximum bank financing.
Major Lease hold improvements may also be applicable.

3. Detailed Engineering Approach
Identify the specific project/assets that will be analyzed
Obtain a complete listing of all project costs and substantiate the
total project costs
Inspect the facility to determine the nature of the project and it’s
intended use
Photograph specific property items for reference
Review “as-built” prints, specifications. A/A contracts, bid documents,
contractor invoices and other construction documentations
Identify and assign specific project items to property classes
Prepare quantitative take-offs for all the materials and payment
records to compute actual unit costs
“Catch up” or “Look Back” provision
If a CCS is conducted on an existing structure
The unclaimed depreciation on personal property components that
were previously classified as real property can be deducted as a Code
Sec 481 (a) adjustment in the year of change
The automatic change of accounting rules of Rev. Proc. 2002-9 apply
If a CCS is conducted on a building that was placed into service in a Tax
Year that ended before December 30, 2003
The IRS will allow a tax payer to file amended returns to claim the
benefits
Interest is payable by the IRS on the refund

4. What is Cost Segregation? Does this increase my chances of being audited?
The principle goal of a cost segregation study is to No. The chances of getting audited are not
increase cash flow from constructed buildings, automatically increased.
purchased properties and renovations by accelerating How long does a Cost Segregation study take?
depreciation expense deductions. Through this For small to medium size projects, we typically
analysis, the components of a building are reclassified issue the final deliverable three to six weeks from
into proper class “lives” according to government the point that all information is received.
legislation, case law, and IRS revenue Naturally, the time of year matters a great deal,
rulings/procedures. Substantial tax savings can be consultant workload is much heavier in the
achieved by accelerating depreciation deductions. periods just before filing deadlines. Upon receipt
Why have I not heard about Cost Segregation of an engagement letter, a specific schedule for
before? completion is assigned to each project based upon
Though it has been around, in its current form, since client needs, time of year and, of course, IRS
1987; Cost Segregation was, for some time, almost deadlines.
solely offered by Big 4 accounting firms and a handful What if my project is still under construction?
of large real estate consulting companies who No problem here. In fact, this situation is good for
serviced only the largest of clients. There were very both sides. Our Advisor will work with
few qualified practitioners and, for small to medium construction personnel to document costs and
size taxpayers, the service was cost prohibitive. Within other information to streamline the process as
the last few years however, Cost Segregation has much as possible.
become available, at a very reasonable cost, to Could I not just use my own
smaller companies and individual property owners. architects/engineers?
How does Cost Segregation work? For a few reasons, this is probably not a good
Associates For Savings team of experts will gather idea.
documentation, such as construction plans, contractor First of all, our architects, engineers and CPA’s are
invoices, depreciation schedules, etc. From these specialists, in this field, with decades of Cost
documents, we will identify the qualifying items and Segregation experience. They know the ins and
associated costs to be reclassified into shorter-life outs not just of the construction project, but also
categories. One of our consultants will visit the the accounting side documentation, tax law, etc.
property to compare what was actually built against Architects and engineers alone are typically not
the plans, and take photographs of the property. familiar with the many subtleties involved in a
Results are aggregated and presented in a report, comprehensive study.
along with relevant case law data, definitions, photo Secondly, we offer a combination of construction
documentation and calculation details. industry professionals; in house CPA’s and full
Is this all legal? time research staff provide you with the
Absolutely! Over 1000 IRS revenue rulings and court assurance that your study will be fully compliant
cases provide the necessary guidelines for proper with the latest changes in the tax law and court
conduction of Cost Segregation studies. The IRS has cases.
also recently issued an Audit Techniques Guide that Lastly, our team is experienced in defending our
defines a quality Cost Segregation study. work in the event of an audit, at no additional
charge.

5. What sort of documentation do I need?
What sort of benefit might I expect?
At the front end of a Cost Segregation study, we only
The benefit of a Cost Segregation study lies in
have to know certain basic information, such as the
the timing of tax payments. Assuming a 35%
capitalized cost, property location, placed-in-service
Federal tax rate, an 8% discount rate, half-year
date, etc. to provide an estimated benefit. Once
convention, and no bonus depreciation, for
engaged, the more information available, the better.
every $1,000,000 of property reclassified from
The following list is fairly comprehensive:
39 years has a cumulative present value of tax
New Construction:
deferral equaling approximately:
The date of acquisition or “placed in service date”
$195,000 for 5-Year Property
The capitalized costs
$178,000 for 7-Year Property
Complete set of plans
$108,000 for 15-Year Property
Contractor’s final application for payment or similar
In other words, the benefit is approximately $.19
document
for every dollar reclassified to five years from
A complete list of all change orders with a brief
thirty-nine years.
description of each
No amended return? Even if my building was A copy of the specifications (If readily available)
acquired/constructed in a prior year? Rent roll or similar document (For multi tenant
That’s right. IRS provisions will allow you to “catch buildings only)
up” on missed depreciation by filing a 3115. No A list of owner incurred costs above and beyond the
need for an amended return. General Contractors costs. Examples include
What if there is a 1031 exchange associated with architectural and engineering fees, permits, testing
my property? and materials paid for directly by the owner
In some situations (certainly not all) this can Purchased Properties:
reduce the benefit if the tax basis is decreased. The date of acquisition or “placed in service date”
We recommend speaking to us about the specifics The capitalized costs
of your property; together we can devise the best Depreciation schedule
plan of attack for you. Plans, site plans and surveys (If available)
I am interested in learning more. Do you charge Square footage of buildings and site
for estimates? Appraisal (If available)
No, we would very much like to hear from you. Rent roll or similar document (For multi tenant
Let us discuss your property and tax situation in buildings only)
order that we might maximize your tax savings. A site visit is an essential part of a good study;
Do I need all the documentation available for the sufficient information can be collected, from such a
initial estimate of benefits? visit, to accurately perform a Cost Segregation study
No. While more information will result in a more in the event that construction drawings and cost
accurate estimate, we can utilize information information are not available.
collected from similar projects to estimate Will I need to file an amended return?
benefits for your situation; of course, more No. IRS Revenue Procedure 96-31 allows a taxpayer
detailed information produces a more accurate to file a form 3115 Automatic Change in Accounting
estimate. rather than an amended tax return. This form can be
used to fix depreciation as far back as 1987. If you
wish our team of experts will prepare the 3115 for
you.
Tactical Leverage LLC / Thomas J. Tysl / 1701 W. Northwest Hwy Grapevine, Texas 76051
817.404.9011 / Fax 817.224.2924 / ttysl@advocatesforsavings.com