It’s not a “one size fits all” approach.  We make it a point of understanding our clients’ needs – not just in the current year but throughout the ownership period.

Properties go through life cycles – whether it’s based on use, age or market conditions. Also, different groups within a client organization play distinct roles within the various phases of the life cycle.  It is not uncommon for these groups to be unaware of the value of tax-centric information.

Life cycle of real estate graphic

Here are just a few examples of how the information from our reports can be utilized.

Concept / Feasibility

Many sophisticated investors will want to gain a better understanding of how the depreciation  deductions will impact cash flow.  Source Advisors is routinely engaged by clients who wish to include our projections in the pro-forma packages.


It is usually best to have Cost Segregation Study completed following acquisition in order to maximize depreciation deductions from day one, benchmark property for asset management purposes and for a better understanding of what was specifically included or excluded as part of the acquisition.  Also, in light of the Tangible Property Regulations, a comprehensive study will also properly document all assets that might be subject to disposition in the future.

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Top 10 Questions To Ask A Cost Segregation Provider Before Working With Them

Navigating the complexities of tax planning can be overwhelming for businesses. One area that can offer significant tax savings is Cost Segregation. A well-executed Cost Segregation study can lead to accelerated depreciation deductions, allowing businesses to maximize their cash flow.

However, choosing the right provider to conduct this study is crucial. Below are the top 10 questions you should ask a Cost Segregation provider before engaging their services.

1. How long has your firm been performing Cost Segregation studies?

Experience matters when it comes to the complicated process of Cost Segregation. Knowing how many years a firm has been in the business will give you a sense of their expertise and reliability.

2. How many Cost Segregation studies has your firm completed?

Quantity can be an indicator of experience. The more studies a firm has conducted, the more likely they are to have dealt with situations similar to yours.

3. Does your firm employ degreed or professional engineers with specific Cost Segregation experience?

The role of engineering knowledge in a Cost Segregation study is essential for identifying and categorizing assets correctly. Ensure the firm has qualified engineers who specialize in this area.

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Cost Segregation And Multifamily Property: Busting The Myths

In J.P. Morgan’s 2023 Commercial Real Estate Outlook, multifamily property is designated as the highest performing of all asset classes. A recent study commissioned by the National Multifamily Housing Council and National Apartment Association revealed that the U.S. needs to build 4.3 million new apartments by 2035. The demand for multifamily units clearly remains strong, reinforcing its reputation as a “safe” investment.

Investors may initially be drawn to this vertical for safety, scalability, and predictable income, but they often stay for the significant tax benefits. Multiple tax strategies are available, including accelerated depreciation, which can be used to offset a portion of that predictable rental income. Cost segregation is the vehicle for these tax savings.

So why doesn’t every multifamily property owner consider cost segregation? Some simply aren’t aware of it, while others have been misinformed. Let’s debunk some of the common myths holding multifamily investors back from potential opportunity.

1. You can only do cost segregation studies on commercial property, not residential rental real estate.

[ False ]
Cost segregation can be performed on residential real estate, from multifamily to single family rental properties, and in fact multifamily properties are considered great candidates for cost segregation.

2. There aren’t a lot of assets to reclassify in a multifamily property.

[ False ]
While the exact yield will vary based on projects details, layout, and location, between 20-35% of assets in multifamily properties may be accelerated.

Without cost segregation, residential real estate capital assets are assigned a 27.5-year Class Life.

With cost segregation, these are just some of the asset categories that can be moved into much shorter Class Lives:
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Top 10 Must Knows Before Diving Into Tax Year 2022

10. 179 Expensing May Play a Larger Role in 2023 and Beyond:

With 100% bonus rates set to phase down starting in 2023 (see #3 below), Section 179 Expensing may step up.  With a larger deduction of $1.08M for TY 2022, and the ability to immediately expense the full cost of an asset, Section 179 Expensing may soon carry more weight in a comprehensive tax plan. There are several nuances to be aware of – including potential state-specific limitations – but we anticipate more strategic bonus/179 Expensing interplay moving forward. 

9. New Audit Technique Guideline (ATG) Points Focus in New Directions:

In June of this year the IRS released an updated version of the Cost Segregation Audit Technique Guideline for the first time since 2017. By examining the ATG, taxpayers can anticipate what Examiners will focus on in the unlikely event of an audit. The 2022 update points out two new areas of focus – the importance of identifying land values is stressed, and an entire new chapter is added on electrical distribution systems. 

8. Rise of the Non-Profit Tenant:

We’re seeing many retail and office buildings bringing non-profit or government tenants into their properties. This trend may have a huge impact on the way depreciation rules are applied in those properties. The good news is that – depending on circumstances – the taxpayer might not be locked into ADS class lives. This topic is very nuanced, so we covered it in both a feature article and an episode of our podcast, Capstan Live! 

7. 754 Step-Ups – Don’t Miss the Opportunity:

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A Perfect Match: Choosing Referral Partners That Add Value

A Perfect Match: Choosing Referral Partners That Add Value  

Today’s CPAs serve as true partners and trusted advisors to clients, becoming intimately familiar with each client’s growth, plans, and struggles.  This means that when the need may arise to augment in-house services, most CPAs won’t partner with just anyone. Many CPAs are wary of recommending consulting firms, concerned that an unsuccessful engagement might damage the client relationship. No matter what type of referral partner is being considered – financial services firm, insurance firm, 1031 exchange firm, cost segregation provider, or any other – the CPA firm must do their research and carefully select someone they trust to take care of their clients.  

I’m not really comfortable with the idea of a referral partner. Why can’t we keep things in-house? 

Depending on the nature of your firm, maybe you can. However, as the tax code gets deeper and more complex, it’s becoming difficult for all but the largest firms to have every necessary expert just down the hall. For example, cost segregation is a specialty service requiring knowledge of construction methods, engineering, and the Internal Revenue Code for fixed assets including applicable Tax Court cases and Revenue Rulings.  The concept of accelerated depreciation may seem simple, but depreciation law and building technologies are anything but. A detailed, defensible cost segregation study can only be performed by an experienced engineer, and most CPA firms don’t have the volume to justify keeping those niche resources in-house. Partnering with a qualified cost-segregation firm like Capstan allows a CPA firm to provide a value-added service without keeping engineers on staff. 

What will the right referral partner (RP) do for my firm?  

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Free CPE Credit - 1 Hour

Focus On The Market: The Utility Cost of Segregation

Time: Oct 12, 2022 12:00 PM in Eastern Time (US and Canada)

Register Here

This innovative case-based presentation reviews current tax strategies by taking attendees on a tour of different segments of the market. The session will begin with a brief overview of Cost Segregation, highlighting its utility throughout the real estate life cycle, and its crucial role as the vehicle for savings. The presenter will then pivot to discussing Bonus Depreciation, the Tangible Property Regulations, and Partial Asset Disposition using real examples from the manufacturing sector. Commercial rental property will then serve as the basis of a discussion of Qualified Improvement Property and the CARES Act. After additional residential real estate examples, the presenter will close with a discussion of Section 179 Expensing and how it can be employed most strategically. A survey of assets relevant to each market sector will be reviewed.
Learning Objectives:
* Understand how cost segregation is the vehicle by which tax savings opportunities are obtained
* Identify possible opportunities for cost segregation throughout the real estate life cycle
* Recognize assets eligible for cost segregation in a variety of market sectors
* Review the impact of the CARES Act on Qualified Improvement Property
* Become familiar with Section 179 Expensing
* Review the interplay between bonus, 179 and the TPRs
Course Outline:
Overview of Cost Segregation
Construction/Manufacturing Industry
Survey of Assets
Bonus, TPR, and PAD Case Studies
Commercial Rental Properties
Survey of Assets
QIP Case Studies
Residential Rental Properties
Survey of Assets
Section 179
A Comprehensive Plan Expensing Hierarchy
Recommended CPE: 1.0 Credit
Program Level: Beginner/Intermediate
Prerequisites: General Background in Accounting, Depreciation and Cost Segregation
Advanced Preparation: None
Field of Study: Taxes
Cost Seg 201: Current Commercial Real Estate Depreciation Strategies for 2021

Cost Seg 201: Current Commercial Real Estate Depreciation Strategies for 2021


The Coronavirus Aid, Relief, and Economic Security Act (CARES Act) corrected the recovery period of Qualified Improvement Property (QIP) to 15-year. This has tremendous implications and will play a large role in a modern comprehensive tax strategy. In this session we will examine the historical treatment of Qualified Property Categories and focus on the current status of QIP under the CARES Act. We will also explore other strategies that may be part of a comprehensive tax strategy and will discuss a strategic hierarchy for employing those strategies most successfully. Relevant Rev. Procs. and several real-life case studies will be reviewed.

Learning Objectives:
• Understand the history of Qualified Property Categories.
• Explain the implications of the CARES Act’s correction of QIP recovery period.
• Understand how to incorporate retroactive CARES Act changes into past returns.
• Understand the value of QIP as an indicator of Section 179-eligible property.
• Explain how strategies like Section 179 Expensing, Bonus Depreciation, the Tangible Property Regulations (TPRs) and Energy Incentives all contribute to a comprehensive tax strategy.
• Compare and contrast Bonus and Section 179.
• Use various tax strategies in a strategic manner to maximize savings.

Top 10 Things You Should Know About Cost Segregation

1. The concept is simple.  

Any given property contains a multitude of different assets, and each of them can be expected to have a different useful life.  For example, you can confidently expect marble flooring to last a lot longer than say, carpet tile.  The IRS provides guidelines that indicate how long different assets might last, using a system called MACRS (Modified Asset Cost Recovery System.)  The default MACRS class-life for an asset is 39 years.  If no cost segregation study is performed, all assets will depreciate over 39 years for commercial property or 27.5 years for residential.  Now that makes sense for marble flooring, but not for carpet tile.  Why should carpet tile just sit on the books, being depreciated over 39 long years?  

In a cost segregation study, engineers identify and quantify all building assets, and then assign each asset a cost.  These costs are then segregated into different categories according to their asset class lives.  Base building or “shell” assets remain 39-year assets, but many items can be moved into shorter-lived class lives:   

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Cost Segregation: Maximize Your Real Estate Tax Savings Now

There’s so much to consider when embarking on a new construction project. One factor that should always be taken into account is the opportunity for tax savings. There are many favorable tax strategies that can boost a project’s bottom line, and often the key to employing them most successfully is simply good planning. Cost segregation is one of these powerful strategies, and it is primarily used to accelerate depreciation deductions, though it has myriad applications. The benefits of cost segregation on acquisitions, new construction and renovation projects result in significant tax deferrals and improved cash flow.

Cost segregation is an IRS-recognized tax benefit strategy in which
specific components of a building or improvement project are identified and reallocated into modified cost recovery system (MACRS) class lives for federal tax purposes. Treating the assets as personal property or land improvements allows depreciation of these assets to be accelerated. Personal property depreciates over 5 or 7-years and land improvements depreciate over 15-years. This is significantly quicker than conventional 39-year depreciation period.

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Cost Segregation And 1031 Exchanges - Better Together

Commercial real estate owners, developers, and investors have many tools at their disposal with which to develop a strong tax strategy.  In addition to the stable of well-known strategies, the last few years have seen many expanded programs designed to incentivize real estate development. Two great examples are the 1031 exchange and accelerated depreciation, also known as cost segregation. Up until 2017, these two long-standing strategies have typically been mutually exclusive endeavors, as a byproduct of the 1031 process is a low step-up basis, which mitigates the effectiveness of cost segregation.   However, the Tax Cuts for Jobs Act (TCJA) changed aspects of both strategies in a way that facilitates their simultaneous use.

Under the TCJA, 1031 exchanges are required to exclude personal property from the exchange basis. This very exclusion may trigger a taxable event.

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Bruce Johnson

Self-storage has been a very popular property type for cost segregation for many years. It ties closely to the boom in multifamily property development we have seen over the last decade or so. Most self-storage properties fall in the $1M-$5M basis range, but basis can stretch into the 10s of millions depending upon property size, location, and unique features.

There are certain features that make a self-storage facility a strong candidate for cost segregation.   For instance, does the subject property have climate-controlled lockers?  These specialty lockers are eligible for accelerated depreciation.  How are the interior walls between the lockers constructed?  If they are demountable and therefore movable, then there is a possibility that the walls themselves may be considered a personal property asset, and therefore be depreciated at a greater rate.

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A properly designed and implemented Construction Tax Planning analysis will proactively identify additional tax savings related to new and / or planned construction projects. It should be duly noted that a Construction Tax Planning analysis should not be confused with a Cost Segregation analysis as there are several notable differences between a Cost Segregation analysis and a Construction Tax Planning analysis. Read More