1. The “Fully Engineered & Construction” Method is the most comprehensive study and therefore is the IRS’ preferred methodology (and ours) when performing a Cost Segregation Study. Because it is so detailed, this study provides the client with the largest tax savings. We maximize the client’s benefits by researching every potential opportunity by utilizing this extremely detailed method as outlined in our Agreement. As a result, the client receives 100% of the benefits he/she is entitled. The client also has the advantage of retiring an asset and removing it from the tax books if something on the property needs replaced or remodeling takes place. It is the most comprehensive, time intensive and detailed report. All qualifying and non-qualifying components are identified and recorded. Because of the details of the report, this study is very defendable under an I.R.S. review or audit.
2. The “Residual” Method is “engineered based” and is the second most popular study. Because this method is “engineered based,” we frequently come across companies mistakenly using this method and referring to it as an Engineering Study, when it is not. The final report lacks the detail a true Engineering Report has as described above. This study is primarily used by clients who don’t have the income to offset the deductions the “Engineering” method produces, they don’t want to take all of the deductions they are entitled to, or they don’t want to pay for a full Engineering Study. This method will depreciate approx. 65% – 75% of what the “Engineering” proposal reflects in the “Total” column on the analysis page. Retiring an asset is not an option with this type of study. The report is not as detailed and involved as the engineering report. We list every qualifying and some non-qualifying items in the study. This study is defendable, but sometimes some money has to be given back to the I.R.S. because not all non-qualifying items are listed in the report. This report cost is 20% less the engineered study.
3. The “Rule of Thumb” Method is most seen in smaller properties valued between three to four hundred thousand dollars. This study is used primarily by clients who want to have a portion of benefit of additional depreciation and aren’t concerned about an audit. This report is not defendable should an IRS audit occur. There is a possibility a client will have to give back some of the money to the IRS, should an audit occur. The additional depreciation is approx. 30% – 35% of the “Engineering” method. The report cost is 40% less the engineered study.
4. The Appraisal Method, this method uses appraisals as their basis for obtaining their information. We do not recommend this method.
Hayley Capital provides the highest-level “fully engineered” cost segregation studies for our clients. We work with both large and small property owners and we hope to work with you very soon.”
Sincerely, Barbara Hayley, Founder/CEO