A Cost Segregation Study is an engineer-based study of all of the individual assets purchased in a real estate transaction. This allows the taxpayer to use an accelerated depreciation schedule resulting in higher tax deductions in the early years of the purchase of a property — keeping more dollars in the business.
A CSS can be the difference between a successful real estate venture and a failed one. No matter where you are in your Cost Segregation journey, RCG Valuation can generate the right data needed for you to maximize your investment potential.
How does a cost segregation study work?
When you purchase or build a commercial property, it depreciates straight-line over 39 years (27.5 years for residential rental properties).
However, the commercial property is actually made up of many components, some of which can be depreciated over a shorter time period.
As part of our cost segregation study, we will:
Identify and quantify each component.
Allocate the total cost of the building across all the components.
Reclassify each component according to the law, based on the facts and circumstances.
Assign shorter tax lives accordingly.
Recompute the accelerated depreciation to date, to defer tax liability.
RCG Valuation is unique in the cost segregation industry in three distinct ways:
Our reports are entirely based on the IRS tax law and provide the thirteen steps laid out by the IRS for a proper cost segregation study. This framework has been tested thousands of times across the country.
The technology we use is less invasive and highly immersive when compared to traditional cost segregation documentation. Our ability to send the virtual property to the IRS helps prevent the need for costly onsite visits, potentially saving thousands of dollars.
Our background in high finance techniques and strategies makes us the perfect partner on how to most effectively utilize the cost segregation study, as well as project financing, research and development tax credits, and other monetization techniques.
With our Matterport 3D Virtual Camera, we not only create a documented file of the property assets, we’re able to measure the property within a tenth of an inch. Our virtual walkthroughs are a great tool for demonstrating proof of existence and the validity of property assets.
Reducing Your Tax Liability
While every situation is different, here is one recent case study:
An 1,800 sq. ft. office condominium in Scottsdale, AZ had year one deductions of $37,000.
RCG Valuation can perform a thermal study to your commercial property and potential investments to help uncover hidden issues, liabilities and depreciation. Thermal imaging is a powerful and non-invasive means of monitoring and diagnosing the condition of buildings. We use industry leading cameras and diagnostics to deliver more data and accurate assessments of structures, materials and energy inefficiencies. As thermal imaging technology has become one of the most valuable diagnostic tools for building inspections, it has proven to be an invaluable innovation in Cost Segregation.
A Thermal Energy study can see what standard inspections cannot by:
Visualizing energy losses
Detecting missing or defective insulation
Identifying and sourcing air leaks
Finding moisture in insulation, in roofs and walls, both in the internal and the external structures
Detecting mold and badly insulated areas
Locating thermal bridges
Locating water infiltration in flat roofs
Detecting breaches in hot-water pipes
Detecting construction failures
Monitoring the drying of buildings
Finding faults in supply lines and district heating
Detecting electrical faults
Regardless of property type, all physical assets deteriorate over time with major components eventually needing repair or replacement. Without the appropriate reserves in place, funding for these repairs and replacements often must be generated through outside funding sources like special assessments, capital campaigns, or loans. Resolving reserve funding as needed can be more costly and problematic. A credible and current Reserve Study from RCG Valuation makes it possible to prepare in advance for these inevitable expenses, spreading out reserve contributions evenly over time. Our Reserve Studies are in-depth evaluations of a property's physical assets, analysis of it’s capital systems and the qualification of its reserve funds. We use industry leading technology to capture the data needed to accurately asses every component’s condition and depreciation. Four reasons to invest in a Reserve Study are:
State law compliance
Many states now require community associations to disclose reserves, accumulate reserves or have professional reserve studies conducted. It's anticipated more states will adopt similar legislation.
Maintain the property's value and appearance
A reserve study helps maintain the property's value and the property owner's investment. By identifying and budgeting for future capital improvements, the property's common elements continue to look attractive and well-kept, adding to the community's overall quality of life.
Fulfill the board of directors' fiduciary responsibility
Board members of community associations have a fiduciary responsibility to their members. Directors are legally bound to use sound business judgment in guiding the association and cannot ignore major capital expenditures or eliminate them from the budget.
Establish sound financial planning and budget direction
A comprehensive reserve study lays out a schedule of major repairs or replacements to common property elements and applies cost estimates to them. To ensure property owners have adequate reserve funding to cover anticipated costs, a reserve funding plan typically spans 30 years. In short, it's your blueprint for the future.