Tax savings are hidden in your client's building. Finders keepers.
Do you currently have clients who own the building in which their business operates? If so, this building is likely being depreciated over a 39-year period. However, you may have the opportunity to offer your clients significant tax savings through an engineering-based cost segregation study offered by PFA Consulting.
The IRS recently acquiesced in the landmark court case Hospital Court of America, et al. v. Commissioner, ruling that the tests developed for the now repealed Investment Tax Credit remain determinant in classifying assets as tangible personal property or structural components of buildings. Rather than depreciating the total cost of the building over 39 years, an engineering based cost segregation study separates the cost of the building into tangible personal property (typically depreciated over 5 to 7 years), land improvements (typically depreciated over 15 years), and real property (typically depreciated over 39 years).
Fortunately, it’s not too late to offer your clients the benefits of an engineering-based cost segregation study. You don’t even need to amend your client’s past tax returns. Instead, you claim all misseddepreciation from prior years by filing form 3115 with your client's next tax return. This will result in an “automatic” IRS consent to a change in their accounting method for depreciation.
An engineering based cost segregation study will help your clients who:
Own commercial property placed in service after May 12, 1993
Bought or built commercial property for over $500,000, including leasehold improvements
Are profitable and pay Federal income tax
Have no immediate plans to sell their building
PFA Consulting employs a team of engineers, commercial appraisers, and tax experts who specialize in producing engineering based cost segregation studies. We will manage your client’s study from start to finish and minimize your time commitment.
PFA Consulting also offers a referral fee through our alliance agreements with local accounting firms. Many accountants tell us that our alliance agreement has helped to make their marketing efforts more successful, resulting in the acquisition of larger and more profitable clients. In addition, introducing a tax savings tool this powerful will further solidify your relationship with your current clients.
Examples of 5 and 7 year property.
• Process Electrical
• Communication Systems
• Computer Wiring
• Specialty Lighting
• Process Piping
• Pneumatic Systems
• Cabinets and Counters
• Decorative Millwork
Examples of 15 year property.
• Parking Lot
• Exterior Truck Bollards
• Pole Mounted Exterior Lighting
• Site Drainage
• Retaining Walls
• Curbs and Gutters
You’ll gain a new appreciation of depreciation.
Cost Segregation Studies have been around for several years and the IRS expects you to take advantage of them. The current IRS audit guidelines for a quality Cost Segregation Study and Report are generous and present an opportunity to recoup tax savings lost in previous years without amending previous returns. Using outdated IRS guidelines to depreciate commercial property will cost your client money, and that could cost you a client.
We sort out the costs…You add up the savings.
Over the years PFA has saved millions of dollars for our clients. In the examples illustrated below, the savings shown are per $1,000,000 of depreciable assets. Typically, tax savings in the first year alone will more than pay for our services.
First year tax savings (1)
first three year
tax savings (2)
Present value of total savings (3)
(1) First year tax savings based on half-year and mid-month convention, per IRS guidelines
(2) Present value of tax savings for the first three years of service
(3) Total net present value of tax savings over the 39 year life of the commercial property