Being in the cost segregation industry, we’ve heard our fair share of misconceptions and misunderstandings. The reality is, cost segregation is a gem of a tax planning strategy that can be highly beneficial if taken advantage of. Don’t let your doubts hold you back. To clear up any confusion, we're debunking the top misconceptions of cost segregation. Check out the below myths versus facts. See any you're familiar with?
1. If cost segregation isn’t done within the first year after purchasing a property – you’ve missed the boat
The truth is you can do cost segregation anytime during your ownership and "catch-up" the accelerated depreciation you would have gotten if you did cost segregation in year one. To do this though, the law requires you to file a Form 3115 Change in Accounting Method.
On a side note, Titan Echo does complete the Form 3115, as a part of the project.
2. Only a CPA can provide cost segregation services
While we partner with CPAs to provide cost segregation services to their clients, chapter 4 of the IRS Cost Segregation Audit Techniques Guide states that, “in general, a study by a construction engineer is more reliable than one conducted by someone with no engineering or construction background.” In a nutshell, having experience in cost estimating, allocation and tax law, is always a good idea.
3. Doing cost segregation increases your risk of an audit
It’s actually the other way around. Should your study get audited, and the methodologies/procedures utilized were not accurate or well documented, then yes, you can be subject to an audit resulting in significant penalties.
4. I can't do cost segregation because I'm planning on selling my property to buy another
If you recently sold a property, but have yet to file taxes and report the sale, you can still perform a cost segregation study to maximize deductions.
5. It’s not worth doing cost segregation when the value of a building is too low
Cost segregation can be done on a building with a basis as low as $200,000.
Check out our Echo Lite Segregator. ELS is a do-it-yourself cost segregation software solution, specifically for buildings with a basis of less than $500,000. It is an empirical modeling tool, founded on a database of full-blown quality cost segregation studies.
Any other misconceptions you can think of that you need clarification on? Drop us a comment below!