blog http://www.costsegleader.com/blog M&E Cost Segregation Thu, 26 Apr 2012 16:08:03 +0000 en hourly 1 http://wordpress.org/?v=3.1.2 Ghost Assets On The Books? Don’t Miss The Opportunity To Write Them Off! http://www.costsegleader.com/blog/2012/04/ghost-assets-on-the-books-don%e2%80%99t-miss-the-opportunity-to-write-them-off/ http://www.costsegleader.com/blog/2012/04/ghost-assets-on-the-books-don%e2%80%99t-miss-the-opportunity-to-write-them-off/#comments Thu, 26 Apr 2012 16:08:03 +0000 Chuck Evans http://www.costsegleader.com/blog/?p=183 Have you previously removed or replaced any structural components of your building(s) such as a roof, HVAC equipment, doors, windows etc.?

If you, or your clients have, there are substantial benefits to conducting an Asset Retirement Study.

On December 23, 2011 the IRS and Treasury Department released the long awaited Temporary Regulations for Guidance Regarding Deduction and Capitalization of Expenditures Related to Tangible Property.

“The regulations revise the definition of Disposition for property subject to section 168 to include the retirement of a structural component of a building.”

“This change allows a taxpayer to recognize a loss on the disposition of a structural component of a building before the disposition of the entire building, so that a taxpayer will not have to continue to depreciate amounts allocable to structural components that are no longer in service. Thus, under the temporary regulations, a taxpayer is not required to capitalize and depreciate simultaneously amounts paid for both the removed and the replacement properties.”

If you, or your clients are still carrying the retired “Ghost” assets on the depreciation schedule, the opportunity to write off those assets and realize a tax benefit for those assets is available now.  (See Example at the bottom of the page.)

The problem:  How to determine or break-out the cost of the disposed asset.

At M&E Cost Segregation we determine specific asset costs on a daily basis.  While performing our engineering based cost segregation services, we assign costs to every component of a building.  An Asset Retirement Study is a limited scope in engagement in which we are applying engineering & costing methodologies to one or several large assets.

We will provide a No Cost, No Obligation, Asset Evaluation that will show an estimated range of benefit and our flat fee to conduct the study.  This provides the opportunity to make an educated decision before moving forward with the study.

Furthermore, we will defend our findings at no charge to the client.

Contact Us today to get additional information or to start the evaluation process.

Examples:

Example 1.  A owns an industrial building with a 100,000 square foot roof that was replaced in June 2010.  The retirement of the replaced roof, which is a structural component of the building, is a disposition. M&E is hired to conduct an Asset Retirement Study for the owner. It is determined that the value of the roof when the owner purchased the property in November 2000 was $709,384. Using the 39-year straight-line depreciation method along with the applicable convention it is determined that the adjusted basis in the roof at the time of disposition was $533,553. Building owner A can write-off the disposition of the retired roof, by filing a Form 3115 Change In Accounting Method, and recognize a loss in the current year in the amount of $533,553.

Example 2.  On June 1, 2009, B, purchased and placed in service a $25,000,000 office building that was constructed in 2000.  On March 15, 2012 owner B replaced four of the twelve HVAC rooftop units.  The assets were not separately stated and the building was accounted for as a single asset with a cost of $25,000,000. The property was depreciated as non-residential real property and used the straight-line method of depreciation with a 39-year recovery period. Because B cannot identify the cost of the structural components of the office building from its records, it hires M&E to determine the costs of the HVAC units.  It is determined that at the time of purchase the HVAC units were each worth $267,000.  Using the straight-line 39-year depreciation method and mid-month convention, B was able to recognize a loss in the current year of $991,551.

 

]]> http://www.costsegleader.com/blog/2012/04/ghost-assets-on-the-books-don%e2%80%99t-miss-the-opportunity-to-write-them-off/feed/ 0 Federal Reserve Board Sees Improvement http://www.costsegleader.com/blog/2012/01/federal-reserve-board-sees-improvement/ http://www.costsegleader.com/blog/2012/01/federal-reserve-board-sees-improvement/#comments Wed, 18 Jan 2012 16:47:31 +0000 Chuck Evans http://www.costsegleader.com/blog/?p=155 National economic activity expanded at a modest to moderate pace during the period of late November through the end of December.

The reports suggest ongoing improvement in economic conditions in recent months, compared to late spring through early fall.

  • Consumer spending was favorable in general. With significant gains in holiday retail sales compared with last year’s season.
  • Activity in the travel and tourism sector expanded.
  • Demand strengthened further for nonfinancial services, including professional and transportation services.
  • Manufacturing activity expanded, generally continuing its steady overall expansion.
  • Agricultural producers and extractors of natural resources reported generally robust conditions.
  • Residential real estate activity held steady at very low levels. With the only exception being of further increases in the construction of multi-family units.
  • Commercial real estate reported stronger demand in the Minneapolis, Kansas City, Dallas, San Francisco, Atlanta and Chicago markets, compared to the earlier 2011 months.  The same markets also showed improvement in nonresidential construction activity.  Cleveland and Chicago showed the strongest demand.  Minneapolis highlighted growing demand for industrial space while San Francisco had growing demand in the technology sector.
  • Banking and Finance lending edged up overall, due to increased loan demand from businesses.

 

]]> http://www.costsegleader.com/blog/2012/01/federal-reserve-board-sees-improvement/feed/ 0 2012 Tax Deadline Extended http://www.costsegleader.com/blog/2012/01/2012-tax-deadline-extended/ http://www.costsegleader.com/blog/2012/01/2012-tax-deadline-extended/#comments Wed, 04 Jan 2012 20:56:59 +0000 Chuck Evans http://www.costsegleader.com/blog/?p=151 Jan 4 – The Internal Revenue Service today opened the 2012 tax filing season by announcing that taxpayers have until Tuesday, April 17 to file their tax returns.

]]> http://www.costsegleader.com/blog/2012/01/2012-tax-deadline-extended/feed/ 0 A Poorly Performed Cost Segregation Study can lead to IRS scrutiny Years Down the Road http://www.costsegleader.com/blog/2011/12/a-poorly-performed-cost-segregation-study-can-lead-to-irs-scrutiny-years-down-the-road/ http://www.costsegleader.com/blog/2011/12/a-poorly-performed-cost-segregation-study-can-lead-to-irs-scrutiny-years-down-the-road/#comments Mon, 19 Dec 2011 15:24:41 +0000 Chuck Evans http://www.costsegleader.com/blog/?p=146 As in the case of Ronald Pearce and Darryl Pearce versus the Department Of Revenue, State of Oregon.  CLICK HERE for the full tax case.  The plaintiffs chose to perform the cost segregation analysis for their rental apartment properties using the rule of thumb method. They believe their analysis was proper because of their experience in the apartment industry. The cost segregation studies were performed for the 2004 tax year.  Years later, in 2006 and 2007 they were audited. Plaintiffs argued that the defendant could not examine a closed year, 2004, to determine the amount of deduction that should properly have been taken in 2006 and 2007.

In conclusion, it was decided that the defendant had the right to examine a closed tax year to recalculate depreciation deductions for open tax years.  A poorly performed cost segregation study can haunt you for as long as you apply a depreciation deduction for the property to your tax return.  This decision further illustrates the need to select the most qualified provider to perform your study.

They did not follow proper protocol as required by the IRS cost segregation audit techniques guide; expressly the thirteen principal elements which include:

PRINCIPAL ELEMENTS OF A QUALITY COST SEGREGATION STUDY

The 13 principal elements of a quality study are:

1.  Preparation By An Individual With Expertise And Experience

2.  Detailed Description Of The Methodology

3.  Use Of Appropriate Documentation

4.  Interviews Conducted With Appropriate Parties

5.  Use Of A Common Nomenclature

6.  Use Of A Standard Numbering System

7.  Explanation Of The Legal Analysis

8.  Determination Of Unit Costs And Engineering “Take-Offs”

9.  Organization Of Assets Into Lists Or Groups

10.  Reconciliation Of Total Allocated Costs To Total Actual Costs

11.  Explanation Of The Treatment Of Indirect Costs

12.  Identification And Listing Of Section 1245 Property

13.  Consideration Of Related Aspects (e.g., IRC § 263A, Change In Accounting Method And Sampling Techniques)

 

]]> http://www.costsegleader.com/blog/2011/12/a-poorly-performed-cost-segregation-study-can-lead-to-irs-scrutiny-years-down-the-road/feed/ 4 Property Managers Can Build Client Relationships With Cost Segregation http://www.costsegleader.com/blog/2011/11/property-managers-can-build-client-relationships-with-cost-segregation/ http://www.costsegleader.com/blog/2011/11/property-managers-can-build-client-relationships-with-cost-segregation/#comments Tue, 01 Nov 2011 19:22:04 +0000 Chuck Evans http://www.costsegleader.com/blog/?p=140 Property Owners entrust Property Managers to maximize the return on their building investment.  So why wouldn’t Property Managers suggest cost segregation as an additional cash flow benefit to the Property Owner?

Property Managers have all the viable property information to solicit a no cost, no obligation, cost segregation proposal that will lay out the benefits of cost segregation along with the costs to complete the comprehensive study.  The Property Manager can present the proposal to the Property Owner and/or his or her CPA to determine the overall tax benefit to the owner.

Taking this step sends a message to the Property Owner that you are willing to go out of your way, and think outside of the box, in order to maximize the return on their investment; thus, solidifying the relationship between Property Manager and Property Owner.

 

]]> http://www.costsegleader.com/blog/2011/11/property-managers-can-build-client-relationships-with-cost-segregation/feed/ 0 It Is Not Too Late To Take Advantage Of Cost Segregation For Your 2010 Taxes http://www.costsegleader.com/blog/2011/08/it-is-not-too-late-to-take-advantage-of-cost-segregation-for-your-2010-taxes/ http://www.costsegleader.com/blog/2011/08/it-is-not-too-late-to-take-advantage-of-cost-segregation-for-your-2010-taxes/#comments Tue, 09 Aug 2011 20:11:16 +0000 Chuck Evans http://www.costsegleader.com/blog/?p=136 There is still time to conduct a Engineering Based Cost Segregation Study in order to meet the September 15th or October 15th deadlines. 

If you own a Commercial or Residential Rental building(s) and owe federal taxes with your 2010 return, a properly performed Engineering Based Cost Segregation Study could reduce or eliminate your tax liability.

You owe it to yourself to find out.  We will perform a free, no cost, no obligation initial evaluation and prepare a Cost vs. Benefit analysis that will layout the expected benefits and the flat fee required to complete the study. You can then make an educated decision whether or not to move forward with the study based upon the anticipated return on investment.

Go to our Free Proposal webpage for more information or feel free to call us at 866.303.6695.

]]> http://www.costsegleader.com/blog/2011/08/it-is-not-too-late-to-take-advantage-of-cost-segregation-for-your-2010-taxes/feed/ 3 It Is Not To Late To Elect 50% Step-Down Bonus Depreciation http://www.costsegleader.com/blog/2011/04/it-is-not-to-late-to-elect-50-step-down-bonus-depreciation/ http://www.costsegleader.com/blog/2011/04/it-is-not-to-late-to-elect-50-step-down-bonus-depreciation/#comments Thu, 07 Apr 2011 16:40:14 +0000 Chuck Evans http://www.costsegleader.com/blog/?p=120 The IRS is allowing taxpayers the ability to use 100% Bonus Depreciation or step-down to 50% Bonus Depreciation.  The Joint Committee on Taxation (JCT) recently released the “General Explanation of Tax Legislation Enacted in the 111th Congress” known as the “Blue Book”(JCS-2-11).   In the Blue Book, Congress states that it is their intent that “a taxpayer may elect 50 percent (rather than 100 percent) bonus depreciation with respect to all property in any class of property placed in service during a taxable year.”  The IRS has decided to follow JCT’s guidance and allow taxpayers the opportunity to select 50% bonus depreciation versus 100% bonus depreciation for the tax year that includes September 9, 2010 on a class by class basis for assets that were placed in service from September 9, 2010 through December 31, 2010.

This is a reversal from the IRS’s original stand that a step-down election from 100% to 50% bonus depreciation could not be made and the only option for a taxpayer that did not want to take the 100% bonus depreciation was to opt out of bonus depreciation entirely.

If you have already filed your taxes or plan to by April 18th, 2011 without making the 50% step-down election and wish to do so, the IRS has provided an automatic six month extension to make the election provided by Section 301.9100-2(b) of the IRS Regulations.  Within the six month extension period, an amended return must be filed, showing the election, with “FILED PURSUANT TO §301.9100-2″ stated at the top of the document and sent to the same address had the filing been timely made.  No request for letter ruling is required and user fees do not apply.

At the time of this publication, the IRS has not extended the ability to elect 50% instead of 100% bonus depreciation beyond December 31, 2010.

]]> http://www.costsegleader.com/blog/2011/04/it-is-not-to-late-to-elect-50-step-down-bonus-depreciation/feed/ 6 Do You Have Clients That Purchased or Constructed a Building or Made Leasehold Improvements in 2010? http://www.costsegleader.com/blog/2011/03/do-you-have-clients-that-purchased-or-constructed-a-building-or-made-leasehold-improvements-in-2010/ http://www.costsegleader.com/blog/2011/03/do-you-have-clients-that-purchased-or-constructed-a-building-or-made-leasehold-improvements-in-2010/#comments Wed, 23 Mar 2011 15:00:50 +0000 Chuck Evans http://www.costsegleader.com/blog/?p=115 If so, an engineering based cost segregation study may be able to significantly reduce their current tax burden.  We will conduct a free preliminary analysis now, which will show the estimated benefit for their property and our flat fee to conduct the study.  

If the additional depreciation from conducting a cost segregation study would benefit your client in the 2010 tax year, there might still be time to complete the study before the April 19th deadline, or an extension filing might be required.  Either way we are able to benefit the client in the current tax year. 

With up to 100% Bonus Depreciation available, cost segregation is even more valuable than ever before.

]]> http://www.costsegleader.com/blog/2011/03/do-you-have-clients-that-purchased-or-constructed-a-building-or-made-leasehold-improvements-in-2010/feed/ 11 Cost Segregation Sample Study: Apartment Building http://www.costsegleader.com/blog/2011/03/cost-segregation-sample-study-apartment-building/ http://www.costsegleader.com/blog/2011/03/cost-segregation-sample-study-apartment-building/#comments Fri, 18 Mar 2011 14:50:53 +0000 Chuck Evans http://www.costsegleader.com/blog/?p=110 The two-story apartment building contains 28,000 square feet of gross floor area and is situated on a 1.7 acre site.  The land improvements consist of the 40 unit apartment building constructed of concrete, masonry, steel and reinforced concrete slab on grade with standard reinforced concrete spread and strip footings.  The building is enclosed with concrete masonry and brick walls, with glass doors at the entrance.   The property was purchased in 2008 for $3,500,000.  The allocated land value is $700,000 and the value of the improvements is $2,800,000.  In the Fall of 2010 the owner added $500,000 in improvements to the property.   

CLICK HERE to see the summary benefits including 2010 Bonus Depreciation for this project.

]]> http://www.costsegleader.com/blog/2011/03/cost-segregation-sample-study-apartment-building/feed/ 5 100% Bonus Depreciation and Section 179 Expensing – The Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010 http://www.costsegleader.com/blog/2011/03/100-bonus-depreciation-and-section-179-expensing-the-tax-relief-unemployment-insurance-reauthorization-and-job-creation-act-of-2010/ http://www.costsegleader.com/blog/2011/03/100-bonus-depreciation-and-section-179-expensing-the-tax-relief-unemployment-insurance-reauthorization-and-job-creation-act-of-2010/#comments Mon, 14 Mar 2011 14:49:43 +0000 Doug Mortenson http://www.costsegleader.com/blog/?p=106 This legislation, which was signed into law on December 17, 2010 expands and extends bonus depreciation through 2012.  The Act provides 100% bonus depreciation for qualifying assets placed in service from September 9, 2010 through December 31, 2011.  For qualifying assets placed in service from January 1, 2012 through December 31, 2012, the Act provides 50% bonus depreciation.

The 50% bonus depreciation provided in the Small Business Jobs Act of 2010 still applies to new assets placed in service from January 1, 2010 through September 8, 2010.

Bonus Depreciation Timeline:

  • January 1, 2010 to September 8, 2010 – 50 Percent
  • September 9, 2010 to December 31, 2011 – 100 Percent
  • January 1, 2012 to December 31, 2012 – 50 Percent

These incentives apply to new/original use assets with a MACRS recovery period of 20 years or less.

In addition, the Act extends S179 Expensing through December 31, 2012.  In 2012 a taxpayer may expense up to $125,000 of qualifying assets with a phase-out threshold of $500,000.  The higher limits under the Small Business Jobs Act of 2010 are still effective for tax years 2010 and 2011.

Benefit:  Businesses that made/make qualifying capital expenditures in 2010 – 2012 will realize greater tax benefits by way of further reducing or eliminating their current tax liabilities.

Consideration:  Eligible businesses that are constructing new buildings or making improvements to existing buildings should consider having a cost segregation study performed for the 2010 tax year.  A properly performed Engineering Based Cost Segregation Study can significantly increase the amount of project costs that qualify for these incentives.

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