Whether you are familiar with cost segregation or you are new to it, you may have the following questions on your mind:
- How much is a cost segregation study?
- Is a cost segregation study worth it?
- How much can I get in tax savings through cost segregation?
- What is the potential return on investment from a cost segregation study?
Join us as we explore the answers to these questions and the best cost segregation firm you can hire.
When it comes to hiring the best cost segregation firm, you’ll want one that prioritizes IRS compliance, has a streamlined process, and offers excellent customer support.
You can work with us at Seneca Cost Segregation to maximize your tax savings using our IRS-compliant studies that can withstand audits.
Schedule a consultation with us for a free savings, cost, and ROI estimate.
Quick Answer – How Much Does a Cost Segregation Study Cost?
The cost of a cost segregation study varies widely, depending on the factors we’ll discuss in the next section.
Generally, the tax benefit from the accelerated depreciation deductions outweighs the cost of the study, making it a valuable investment.
Factors Affecting the Cost of a Cost Segregation Study
Let’s go over some of the key factors that determine how much a cost segregation study costs:
- Type of Property: The fee for a cost segregation study for a residential property is typically lower than that of a commercial one.
- Age of the Property/Timing of the Study: A new property is easier to study than an old one. You can hope to pay less for a newer property or when you conduct a study soon after purchasing or placing a property in service.
- Property Size and Complexity: Larger and more complex properties, such as specialized or multi-purpose buildings, cost more to survey as they require more personnel and time.
- Location: Areas with higher property or living costs can have higher cost segregation study fees.
- Timelines: You can expect to pay more if the deadline is tight and you require expedited services. The firm will have to dedicate more time and resources to the project.
- Type of Building Components and Adjustments: If your property has specialized components or upgrades that require additional analysis, the cost of the study can increase significantly.
Average Cost of a Cost Segregation Study
Depending on the above factors and many more, the average cost of a cost segregation study ranges between a couple thousand dollars for smaller properties to tens and even hundreds of thousands for larger and more complex properties.
ROI of a Cost Segregation Study
The return on investment of a cost segregation study is typically four to sixty-five times the cost of the study or even more in the first year.
The typical cost segregation study tax benefit can range from a few ten thousand dollars to hundreds of thousands and even a few million dollars.
As such, the total tax savings offset the study’s cost by a significant margin, making it worthwhile.
At Seneca Cost Segregation, we conduct a preliminary analysis to determine your potential tax savings and return on investment. This way, you will know if the study is worth it before you pay us.
Get a free savings and ROI estimate to find out how much you can save if your property qualifies for cost segregation.
Ways to Reduce the Cost of a Cost Segregation Study
A dependable cost segregation study can cost a lot of money if you don’t know what to look for.
Here are handy measures to lower the study’s fee without compromising its quality:
- Use a Smaller or Local Firm: A smaller or local cost segregation service provider may charge less than a large, national company. But you must ensure they have the required knowledge and experience.
- Conduct the Study Early in the Property’s Life: Being able to use the savings as soon as possible is achieved by getting a study completed shortly after building or buying the property.
- Work with a Firm with the Right Technology or Software: Ask if the company has or uses modern technology or software solutions to streamline its processes. A streamlined process reduces the required resources, lowering the overall costs.
- Combine Studies: Some cost segregation companies offer discounts if you order separate cost segregation studies on multiple properties in one bulk bundle. Some may offer discounts if you combine the study with other services like tax strategy.
Common Mistakes to Avoid When Budgeting for a Cost Segregation Study
Budgeting for cost segregation can look simple, but you might make costly mistakes.
Here are the key costly mistakes that could water down the benefits of a cost segregation study:
1. Thinking of the Study Simply as a Commodity
Most real estate property owners and investors typically consider a cost segregation study a commodity rather than a service or process.
There are many cost segregation service providers, but they are all different. You shouldn’t expect the same results from any firm while thinking that the cost is the only difference.
You must choose your provider carefully, considering their expertise, experience, and transparency about the study’s worth (or lack thereof).
You’ll also need to consider whether their cost segregation studies trigger IRS audits. If the audits are rampant, look for a more dependable firm.
2. Seeking an Expert’s Help Too Late
Most property owners and investors look for a cost segregation expert when it’s too late. The best times include:
- Before you start building a property
- Before you buy a property
- Immediately after purchasing a property or finishing construction
- Before you place a property in service
If you bring an expert on board early on, they’ll give you early and timely insights into how you could change the plans to increase your cash flow and potential tax savings while maintaining the property’s integrity.
Additionally, you can save money and time because the research process will be less demanding. The necessary information will be fresh, up-to-date, and readily available.
3. Not Involving Your Tax Advisor/CPA
As soon as you start considering a potential cost segregation study, you should ask your CPA or tax advisor for their opinion.
Given the study’s benefits, including tax savings and improved cash flow, you might be too excited to proceed.
Sometimes, completing the study and implementing it could mean undoing years of tax strategies you used before. You might be reversing your tax planning and losing money in the process.
4. Not Requesting a Feasibility Analysis
Not all cost segregation studies are worth it. In some cases, the cost of the study can outnumber the potential tax savings. You would lose money.
The best approach is to first get an estimate for your potential tax savings and ROI from your preferred service provider.
At Seneca Cost Segregation, we always estimate your potential savings and ROI at no upfront cost before you pay for the in-depth service.
Besides, our expertise, experience, and willingness to work with your CPA or tax advisor can ensure you avoid these common mistakes.
We’ll help you maximize your tax savings by legally reducing your taxable income through our IRS-compliant cost segregation studies that ensure you make mistake-free claims to the IRS.
Find out how much you can save—use our free cost segregation calculator.
Frequently Asked Questions (FAQs)
Let’s wrap it up with commonly asked questions about cost segregation studies:
Can You Do a Cost Segregation Study Yourself?
If you have expertise and experience in engineering, construction, tax planning, or accounting, you can conduct a DIY cost segregation study, but almost all CPAs do not recommend this option.
It’s best to have an external cost segregation firm like Seneca do the study for you to maintain objectivity and ensure compliance with IRS guidelines.
Can a Cost Segregation Study Be Used for Multiple Properties?
Generally, you can’t use the same cost segregation study for multiple properties. Each property is unique, requiring a separate study depending on its construction, size, the year it was placed in service or purchased, and function.
If you treat different properties the same way using one study, the results might not be defensible or accurate, even if the properties are similar.
However, you can bundle several similar properties into one cost segregation study package to save money and time.
What Documentation is Required for a Cost Segregation Study?
Some of the documents or information you need for an accurate cost segregation study may include:
- Invoices
- Recent appraisal reports
- Site utility or survey drawing
- Relevant photographs of the property
- Available blueprints, property maps, or floor plans
- Property purchase records, such as the original purchase agreement and closing statement
- Recent fixed assets report and depreciation schedule
- Construction cost records and contracts
- Property improvement records
- Inspection reports
- and more.
What Are the Red Flags to Look Out for When Hiring a Firm?
You’ll want to watch out for the red flags below when hiring a cost segregation firm:
- Inability or unwillingness to share recommendations and testimonials from former clients
- Negative reviews from past clients
- High number of post-study IRS audits
- Lack of a virtual or in-person site visit
- Zero audit support guarantee
- Unrealistic savings estimates
- Unusually low fees
- Lack of transparency regarding qualifications, pricing, or processes
Conclusion
The cost of a cost segregation study shouldn’t keep you from enjoying tax savings from accelerated depreciation.
The first step is to contact a reliable cost segregation firm to see if your property qualifies for the tax strategy. You can also get a preliminary review of your potential tax benefits and the ROI against the cost of the study.
At Seneca Cost Segregation, we only continue with the study once we establish that the potential tax savings exceed our fee.
We’ll also defend the study in the rare case of an IRS audit and can even refund you the cost of the survey if you qualify.
Lower your tax bill with an accurate and defensible cost segregation study—consult with us today.
