Cost segregation costs are all over the board. There are those online advertising DIY cost segregation from $2500 to $1500 to $499, and even as low as $299! There are companies advertising that you can complete an online questionnaire and have a full cost segregation study spit out in minutes. Some of these companies are quite large. Some have years in the business. All claim to have staff engineers.
I have a question. IF anyone can go online and fill out a form and get a cost segregation study for $299, why go anywhere else? Heck, $499 or $1500? Seriously! Why waste time looking at companies that charge more? There must be a reason!
Here is a direct quote from the IRS –
- Preparation By An Individual
With Expertise And Experience
The preparation of cost segregation studies requires knowledge of both the construction process and the tax law involving property classifications for depreciation purposes. Unfortunately, there are no prescribed qualifications for cost segregation preparers. However, a preparer’s credentials and level of expertise may have a bearing on the overall accuracy and quality of a study. <italics emphasis added>
In general, a study by a construction Engineer is more reliable than one conducted by someone with no engineering or construction background. However, the possession of specific construction knowledge is not the only criterion. Experience in cost estimating and allocation, as well as knowledge of the applicable tax law are also important criteria.
A quality study identifies the preparer and always references their credentials, experience and expertise in the cost segregation area.
This is found in the Cost Segregation Audit Technique Guide, Chapter 4 (CSATG). I have another question. Why would the Service prepare a thousand-page document (CSATG) discussing how a cost segregation study should be prepared? I mean, they are the final arbiter of whether they will accept your study or not. Unless, of course, you want to go through an audit and, possibly, court to make them accept your findings…assuming you win. Now, with that said, does it make sense that a “study” can be produced online in minutes for less than you paid for your appraisal? Or less than you paid your architect in design fees? Or for your engineer to produce your construction drawings?
A cost segregation study requires “building knowledge” as well as, “experience in cost estimating and allocation, as well as knowledge of the applicable tax law…” Would you suppose that an individual with this kind of knowledge and training might be more expensive than your architect or engineer? Someone with architectural engineering knowledge AND knowledge of tax law? The average architect charges $2 to $5 per square foot (8% to 15% of total cost) to design and produce architectural drawings. The average construction engineer charges $1 to $4 per square foot to produce construction drawings including Mechanical, Electrical and Plumbing. That means if you have a small, 5,000 square foot office building, you will spend $10,000 to $25,000 for the design and $5,000 to $20,000 for your construction drawings. Mind you now, these are the average costs. You may choose to hire someone with no experience and pay less. You may choose to hire the best and pay more. The average works out to $15,000 to $45,000 before the shovel hits the dirt. Yet, many will opt to pay $299 from a “cost segregation” website to circumvent the recommendations of the IRS. Does this make sense? Especially dealing with an entity that can make your life hell on earth?
The reality is that cost segregation services is a commodity like all other services. Fees are as low or high as you can find. The real issue you should consider is the quality, time and experience of the people behind the firm. Do they know tax law? Are they architects or engineers who also have IRS tax knowledge? Does the firm perform field surveys as recommended by the Service? Are engineering guidelines applied and proper documentation, including tax code, used to support asset allocation? Is IRS audit protection included? All of these processes take time. Time is money. People with these qualifications and expertise are hard to find and costly. The typical cost segregation engineer salary is $150,000 to $300,000 per year.
Look at it this way. You are told you have a brain tumor requiring surgery to remove it. Do you want the surgeon who graduated last in the class or first? Which one charges more? My guess is you go with the best regardless of the cost. You want to live.
When dealing with the Internal Revenue Service, it is smart to go with the best! That would be Segregation Holding LLC – the only firm in America that includes 3 additional years of ongoing cost segregation work at no charge after the initial fee for the original study. This keeps the client in full compliance with the Internal Revenue Code – which is where you want to be.