Get the most out of cost segregation by choosing the right cost segregation company. Here's what to know before committing to a cost segregation company.
WRITTEN & RESEARCHED BY
Editor & Senior Staff Writer
Last updated onUpdated
REVIEWED BY
Finance Director
For many property owners, the best cost segregation company is the one that can maximize tax savings. While this is important, this isn’t the only factor to consider when choosing a cost segregation company.
In this post, we’ll show you how to choose a cost segregation company. We’ll help you learn what to look for and how to spot red flags, as well as guide you toward some of the best cost segregation companies in the business.
Table of Contents
Cost segregation can save your business thousands of dollars now and in the future by accessing property and accelerating depreciation. To take advantage of these tax benefits, you need a firm that specializes in cost segregation studies.
But not every cost segregation company is equal. Choosing the wrong company can result in overlooked tax benefits or incorrect calculations that lead to IRS penalties and interest. Selecting a cost segregation company shouldn’t be a quick decision — instead, you should carefully research your options and know what to look for (and what to avoid) when choosing a company to perform your study.
While researching cost segregation companies, here’s what you should look for before deciding which company to use for your study.
A feasibility analysis is an important step in the cost segregation process. The feasibility analysis is used to:
A good cost segregation company will provide this initial analysis at no cost and with no obligations.
Here’s the hard truth: a cost segregation study isn’t cheap. A study for a smaller residential investment property may cost only a few thousand dollars, while studies for a larger, more complex property can easily cost over $10,000.
That said, it’s important to research and compare fees from several cost segregation companies to get a competitive rate. This information is provided after a no-cost feasibility analysis.
One thing to remember is that price shouldn’t be the sole deciding factor. A cheap cost seg study performed by an inexperienced company could lead to big costs further down the road. Consider all other factors, in addition to study fees, to find the right company for your situation.
Cost segregation studies are performed by a team of experts, including accountants, tax professionals, engineers, and estimators. Each team member plays a crucial role in conducting an accurate assessment of your property.
Ideally, a cost segregation company should have multiple in-house experts to conduct thorough and accurate studies.
Cost segregation studies are complex and shouldn’t be handled by beginners. Look for a cost segregation company that has plenty of industry experience. Don’t be afraid to ask about qualifications, as well as past client testimonials, before hiring a cost segregation firm.
While not necessarily a requirement, working with a company that has done case studies is a big plus. These cost segregation case studies can not only give you an idea of the tax benefits offered by cost segregation, but they can also show that the company has experience in performing cost segregation studies.
Writing off depreciation following a cost segregation study may open you up to an IRS audit. Look for a company that offers some form of audit protection, such as access to a tax professional or CPA if you’re audited, tax law references to back up information found in the study, and photographs and video evidence taken during the study.
While there are some key factors to remember when choosing the right cost segregation company, there are also potential red flags to look out for during your search.
Let’s be clear — it is perfectly acceptable for a cost seg company to ask for fees before starting a cost segregation study. However, it is not okay for a company to request fees before performing an initial analysis.
As mentioned earlier, the feasibility analysis estimates the tax savings you’ll see following cost segregation. This analysis also determines if your property qualifies for cost segregation. The fees charged for the study are also disclosed during this step. Reputable cost segregation companies perform this for free with no obligations.
Be wary of any company that charges a fee for this service or requests payment for the study upfront.
Cost segregation companies charge a flat fee for their services. This fee is based on the size and complexity of the property.
However, some companies may try to charge a contingent fee — that is, a fee that is based on the amount of tax savings found following the study. For example, if the study shows you can claim $100,000 in depreciation expenses in the first year, the company may charge 10% (or $10,000).
Reputable cost segregation companies do not engage in this practice, so avoid any company that doesn’t provide a flat-rate fee to conduct your cost segregation study.
Poor customer service is more than just rude — it can significantly impact the timeline of your cost segregation study or even result in inaccuracies that may cost you later.
Look for a company that has a reputation for good customer service. Your ideal cost segregation company should have multiple ways to get in touch, knowledgeable representatives, and quick response times. Companies that are difficult to reach, aren’t engaged in the process, can’t provide answers, and don’t respond promptly to communications should be avoided.
The best company for cost segregation is a business that has experience with cost segregation. In-house experts or partnerships with reputable engineers, CPAs, and tax professionals are critical when hiring a cost segregation company.
The best cost segregation companies offer competitive, flat-rate fees and will provide a free initial analysis. These companies should have case studies, positive reviews, and client testimonials. The best companies will also provide information and support if your tax return is audited by the IRS. They should also be communicative throughout the process and provide quality customer support.
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