All cost segregation specialists are not created equal. Before outsourcing your client’s cost segregation study, you must do your due diligence to find the right service provider. Ask the following five questions to ensure your cost segregation specialist is equipped to maximize ROI and deliver an audit-ready study:

Question #1: Is there an ROI related to the consultant’s cost segregation study?

You’ve likely invested a lot of time and money into the process of constructing, renovating or acquiring properties. When prepared with accuracy and completeness, cost segregation studies maximize cash flow, because you defer taxes on your real estate assets through accelerated depreciation.

The following are the four main ROI benefits of cost segregation:

• A rapid uptick in cash flow;
• A decrease in your existing tax liability;
• The ability to defer taxes; and
• The ability to reclaim historic, allowable depreciation deductions.

Cost segregation is a timing strategy, giving you the ability to shorten depreciable lives utilizing IRS guidelines. The goal of any cost segregation study is to gain a higher return on your property investments.

Question #2: Is a cost segregation study going to be a red flag for an audit?

Cost segregation is the process of accelerating deductions, not tax credits. Contrary to misconceptions of an audit risk, the IRS actually isn’t auditing the study aggressively. Cost segregation isn’t like R&D incentives or regarded as a Tier 1 issue by the IRS. Typically, cost segregation studies are audited because they get pulled in with another tax credit or incentive program that has come under IRS scrutiny.

For peace of mind, however, you must ensure that your tax consultant conducting the analysis hands over a standalone, audit-ready deliverable. When looking to partner with a cost segregation tax consultant, consider asking for references of clients that have gone through an IRS audit for proof that their deliverable was never called into question.

Question #3: Does the tax consultant have expertise beyond cost segregation?

You may have a cost segregation expert that is exclusively able to conduct a study, from an engineering or construction perspective, but their tax expertise is limited. If your client’s study is limited in scope, they’re only going to benefit from deductions, specifically related to the act of depreciating assets.

When it’s time to outsource for a cost segregation study, you have to ensure the person or team conducting the analysis has expertise in construction engineering, accounting and all major facets of corporate tax incentives. 

With a well-rounded team conducting a cost segregation study, the study ultimately reveals tax savings opportunities that extend beyond depreciating assets for cash flow.

Question #4: Does the tax consultant have industry experience in your client’s area of business?

Whether your client’s business is agriculture, technology or the gaming industry (to name just a few), each industry presents a different set of cost segregation opportunities and potential areas of exposure. As such, it’s important to ask any potential tax consultant what type of clients they typically serve in a cost segregation study.

If the tax consultant has experience working with clients in your industry, then you are assured they understand the applicable cost segregation guidance related to the asset classification.

Question #5: What does the tax consultant’s final deliverable of the cost segregation study look like?

The deliverable from a cost segregation tax consultant may uncover “red flags” related to how the study was conducted. For example, if the deliverable doesn’t specify whether a site visit was conducted as part of the analysis, this could signify to the IRS that this may not be a “quality study”.  

Ask as many specific questions as possible about their cost segregation methodology to determine the level of audit support the deliverable provides.

By the end of these five questions, you should have one final understanding about the potential partnership: That, based on their responses, the tax consultant is fully committed and invested in a mutually beneficial relationship.

Before partnering with anyone, you should know the tax consultant is taking a strategic, customized approach to maximizing your tax savings via cost segregation and beyond.

Ready to learn more about conducting a cost segregation study at your organization? Download your complimentary, educational guide below.