While doing a cost segregation study, your goal should be to maximize tax savings and minimize audit risk. The only reliable way to achieve this is to work solely with the best cost segregation company.
How can you effectively vet cost segregation companies? As a longtime player in the industry, the three best signals we’ve found are:
- Study methodologies
- The number of studies that haven’t triggered IRS audits
- And whether or not the firm offers an audit defense guarantee
Read on to discover the cost segregation services that meet the above criteria and more.
TL;DR – Top 7 Cost Segregation Companies
The following are the best cost segregation companies offering engineering-based studies:
- Seneca Cost Segregation
- Haynie and Company
- Engineered Tax Services
- KBKG
- Duffy+Duffy Cost Segregation
- Kaufman Rossin
- Kroll Real Estate Advisory Group
The best cost segregation consultant for you depends on your specific business situation, with the number of successful studies similar to yours being one of the reliable pointers.
At Seneca Cost Segregation, we’ve assessed over 1,200 properties with incredible success. Moreover, you can rest easy knowing that every study is backed by Seneca AuditDefense and money-back guarantees.
Request a free proposal to find out how much you can save in taxes with our IRS-compliant cost segregation services.
What Is Cost Segregation?
Real estate investors use depreciation to allocate the cost of their properties over their useful lives. According to the IRS, the standard recovery period is 27.5 years and 39 years for residential and nonresidential properties, respectively.
Since not all property components will last 27.5 or 39 years, it makes sense to reclassify the short-life components and claim accelerated depreciation consistent with their true useful lives.
Such a reclassification will put the short-life components into five-, seven-, and fifteen-year asset classes, allowing you to front-load a significant percentage of your property’s depreciation.
The reclassification requires a study led by professionals, ideally with engineering expertise. The process is called cost segregation.
Benefits of Cost Segregation
Cost segregation is one of the most powerful tools you can use as a real estate investor to grow your portfolio faster. The following are some of the benefits of doing cost segregation.
- Accelerated depreciation front-loads tax savings: Cost segregation leads to bigger depreciation deductions earlier, reducing your tax bill by lowering your taxable income or creating a paper loss.
- Leads to better investment returns in the long run: If you reinvest your front-loaded tax savings, you benefit from the compounding benefits of the time value of money.
- Gives you a chance to benefit from bonus depreciation: Bonus depreciation allows you to claim a significant portion of the cost of a qualifying asset in its first year. Property components that benefit from accelerated depreciation under cost segregation also qualify for bonus depreciation.
- Reduces your dependence on mortgage loans: Combined with bonus depreciation, cost segregation helps you reinvest most of your money instead of giving it to the IRS. It’s like an interest-free loan from the government.
- Catch-up depreciation: When doing cost segregation on a property built or acquired in prior years, the IRS allows you to “catch up” on the accelerated depreciation you’ve missed. It can give you a considerable one-time tax saving that you can even roll over to offset future years’ income.
How Does Cost Segregation Work?
As mentioned earlier, a cost segregation study would reclassify building components into short- and long-life components.
The long-life components are depreciated over 27.5 years for residential properties or 39 years for commercial properties.
The short-life components, however, benefit from shorter recovery periods of five, seven, or fifteen years.
Can I Do My Own Cost Segregation Study?
You can indeed do your own cost segregation study, but it’s a path we would advise against, as it significantly increases audit risk. Do you have the range of skills required to put together a defensible cost segregation report? How many disclaimers is your DIY provider adding to the intake form?
A proper cost segregation study requires engineering expertise, and the IRS has specific guidelines that every study must abide by.
For context, at Seneca Cost Segregation, we typically have the following professionals with varied skills handling a study:
- Engineers with building and construction skills to help accurately classify building components.
- Cost segregation advisors to ensure compliance with IRS guidelines and industry best practices.
- Cost segregation analysts to put things together and ensure the final report is fully IRS-compliant.
- A dedicated account manager specifically for your project so you have a reliable point of contact with our team.
As cost segregation on a qualifying property has almost guaranteed tax savings if done correctly, it is best to invest in the services of an experienced firm instead of doing the study yourself.
Key Features to Look For in a Cost Segregation Company
Just as Leo Tolstoy’s saying about happy families being alike goes, the best cost segregation companies share common features; each substandard one falls short in its own way.
The following are the key common features of the best cost segregation companies:
- Engineering-based methodology: An engineering-based method ensures accurate classification of building components and leads to defensible cost segregation reports.
- Professional depth: You want a firm with a wide range of professionals on board. At Seneca Cost Segregation, we have engineers, analysts, and people who understand IRS guidelines deeply.
- Audit defense guarantee: A bad study exposes you to audit risk. A firm failing to offer audit defense and a money-back guarantee signals a lack of confidence in the defensibility of their cost segregation reports.
- Extensive industry experience: You want people who have acquired industry experience before starting their own outfit. At Seneca Cost Segregation, our engineering team has more than 12 years of cost segregation experience.
- Proven results with past clients as proof: There should be proof of defensible cost segregation reports through testimonials and case studies from past clients.
- A high number of studies: Experience in professional service fields such as cost segregation is enhanced by the sheer volume of work a professional handles. It helps build pattern recognition abilities, which is a lever in itself. Our engineering team has done over 1,200 studies across the country.
7 Best Cost Segregation Companies
Below are the best cost segregation companies, selected based on cost segregation methodology, team expertise, industry experience, audit defense and guarantees, and client testimonials.
1. Seneca Cost Segregation
Based in Albany, Oregon, Seneca Cost Segregation has done over 1,200 cost segregation studies nationwide. We serve all 50 states and can perform on-site and virtual tours depending on the property.
We have consistently helped real estate investors turn 20 to 40% or more of their property costs into immediate tax savings. With tools such as bonus depreciation, our clients average a first-year deduction of $171,243.
Our engineering team has over 12 years of cost segregation experience. We use an engineering-based cost segregation methodology that ensures accurate and defensible classification of building components.
We provide audit defense and a money-back guarantee. It’s important to note that our engineering-based method provides incredibly accurate and IRS-compliant classification.
Below is what you get when you choose Seneca Cost Segregation:
- A free preliminary consultation to ascertain fit.
- A dedicated account manager for effective communication with our team.
- Ability to customize our study to your specific needs.
- A robust cost segregation methodology backed by proven results nationwide.
- Total compliance with IRS guidelines to reduce the risk of an audit.
- A detailed report backing our property components classifications.
- Post-study support so you and your CPA can implement the findings of our study effectively.
- Audit defense and money-back guarantee.
Do you want to know how much tax savings a Seneca Cost Segregation study is likely to yield for your real estate business? Contact our team today to get a free savings estimate — or get a quick one using our free residential cost segregation calculator.
2. Haynie and Company
Haynie and Company provides CPA and cost segregation services under one roof.
You get the following with a Haynie and Company Cost Segregation study:
- An individualized cost segregation process.
- Detailed reports that comply with IRS guidelines.
- An analysis of your cash flow requirements to determine how best to maximize the benefits of the cost segregation study.
The firm has 13 locations in the country in Texas, Arizona, Colorado, Nevada, and Utah.
3. Engineered Tax Services
Engineered Tax Services has in-house engineers and tax attorneys to help with your cost segregation needs. The company has office locations in Phoenix, Los Angeles, Las Vegas, Raleigh, New York, and Dallas.
With Engineered Tax Services, you get:
- A personalized plan customized to your specific business situation
- The service of an experienced team of engineers who have completed thousands of studies
- An easy-to-understand cost segregation report
Aside from cost segregation, the company also focuses on other tax incentives and credits, including energy efficiency incentives and R&D credits.
4. KBKG
KBKG is a consulting firm focusing on tax credits, deductions, and cost recovery.
They offer cost segregation services for both residential and nonresidential properties, with past projects running the gamut from veterinary facilities to casino buildings.
5. Duffy+Duffy Cost Segregation
The company offers engineering-based cost segregation studies for both residential and commercial real estate investors.
From their offices in Columbus, Detroit, and Cleveland, Duffy+Duffy serves all 50 states.
You can get a free savings estimate from the company by providing some preliminary information about your property.
6. Kaufman Rossin
Kaufman Rossin is a CPA and financial advisory firm, offering a range of services including wealth management, fund administration, and tax services.
The firm has locations in Miami, Fort Lauderdale, Boca Raton, Palm Beach, and New York.
Kaufman Rossin’s cost segregation unit is headed by a tax credits and incentives expert with engineering experience.
7. Kroll Real Estate Advisory Group
With headquarters in New York, Kroll offers several real estate advisory services, including real estate valuation. Their valuation services include:
- Financial mortgage lending appraisals
- Right-of-way appraisal services
- Cost segregation
You can use Kroll’s Cost Segregation services to achieve most of the benefits of claiming accelerated depreciation, including reducing real estate tax.
Kroll provides audit support in the event of IRS queries.
How to Choose the Right Cost Segregation Company
How should you approach selecting a cost segregation company? Below are the key steps to choose the right firm for you.
- Define the scope of work: If you have several properties, do you want cost segregation done on all properties or just one?
- Research and short-list firms with experience in your real estate vertical: Does the firm handle single-family, multi-family, or commercial properties? Does it serve your state?
- Prioritize firms with in-house engineering expertise: You want firms that can handle everything in-house to avoid markups associated with outsourcing.
- Request a free consultation: You want to request a free consultation to gauge if there’s a fit and determine if your property qualifies for cost segregation.
- Request proposals and savings estimates: Many firms will be okay with doing a free preliminary estimate to show you how much you can save. Seneca Cost Segregation provides a free savings estimate.
- Review proposals: Besides the nuts and bolts components of the proposals relating to actual cost segregation studies, you want to also pay attention to things such as references, audit defense, and money-back guarantees.
- Make a decision and clarify contract terms: Knowing the best firm for you, you can clarify contract terms and initiate a study.
Mistakes to Avoid When Hiring a Cost Segregation Firm
You want to avoid the following common mistakes when hiring a cost segregation firm.
- Going with the firm with the lowest fees: While cost is an important variable to help you choose the right firm to work with, having it as the primary decision driver can land you in trouble. An improper cost segregation study may lead to an IRS audit, which may end up costing you more in both money and time. It is cheap because the service is cheap.
- Not prioritizing in-house engineering expertise: Cost segregation studies should be done using an engineering-based methodology. The engineering approach results in significantly higher tax savings and robust reports that are easily defensible.
- Not getting a commitment on audit defense: Properly done, a cost segregation study will unlikely trigger an IRS audit. Nonetheless, you want an explicit commitment from the firm that it will help you defend the study in case of an audit.
- Ignoring track record and absence of references: A cost segregation study is a significant commitment. You want a partner with proven industry experience. If in doubt, ask for verifiable references and speak with them before making a decision.
Frequently Asked Questions (FAQs)
Below are answers to some of the commonly asked questions about cost segregation.
How Much Does a Cost Segregation Cost?
The cost of a cost segregation study would depend on your property’s size, value, and location, as well as the level of complexity of the study.
You can easily get an estimate by requesting a free consultation with your target firm. In the case of Seneca Cost Segregation, we’ll also provide a free savings estimate to help you gauge the potential return on investment (ROI).
How Long Does a Cost Segregation Study Take?
A cost segregation study can take weeks or months, depending on the firm doing the study and the complexity of the project. At Seneca Cost Segregation, we typically complete projects within two to four weeks.
How Often Should I Do a Cost Segregation Study?
Ideally, you should do a cost segregation study at the time you put a property in service or acquire it.
One comprehensive study should be sufficient. That said, if you make significant improvements or renovations to the property, a second study is warranted.
What Type of Documentation Is Required for Cost Segregation?
The cost segregation firm you choose to go with will usually tell you the documents they need to do a cost segregation study on your kind of property.
Generally, you’ll require the following documentation for cost segregation:
- Property ownership or acquisition documents
- Documents to back up renovations or improvements made
- Architectural plans
- Engineering plans
- Property use information
Conclusion
A cost segregation study is a significant commitment. Done correctly, you’ll only need one study for as long as you hold the property, unless you make significant improvements to the unit later on.
Therefore, it makes sense to find a consultant who has a verifiable history of doing things right.
Our engineering team has extensive experience in the industry, with several client testimonials to back our expertise. Schedule a consultation with our team today for a free preliminary analysis of your property to evaluate potential tax savings.
