SPECIALIZED TAX STRATEGIES

SUBSTANTIAL BENEFITS FOR

ARCHITECTS, ENGINEERS, MATERIAL

SUPPLIERS AND THEIR CLIENTS

Using engineering, design and

costing to seize tax savings

Cost Segregation

Tangible Property Regulations

Energy Policy Act 2005 IRC Section 179D

The Opportunities

Cost Segregation-What is it?

• A Cost Segregation Study has been a strategic tax savings tool since 2004 (originally 987) for those who have constructed, purchased, expanded, or remodeled any commercial real estate both in the current tax year or prior tax years.

• A significant increase in cash flow may be realized by deferring federal and possibly state income tax by reclassifying assets resulting in accelerating depreciation deductions.

• A CRG Cost Segregation Study will reclassify the costs of building components that are usually depreciated over 27 ½ years (Commercial Apartments) or 39 years (Commercial Buildings) to depreciable lives of 5, 7 or 15 years.

QUALIFYING PROPERTY

Airports

Apartment buildings

Assisted Living Facilities

Automobile Dealerships

Automotive Service Centers

Banks

Casinos

Cinemas

Day Care Centers

Department Stores

Distribution Centers

Fitness Centers

Funeral Homes

Gas Stations

Golf Resorts

Grocery Stores

Hospitals

Hotels

Industrial Facilities

Laboratories

Manufacturing Facilities

Marinas

Medical Facilities

Mixed-Use Facilities

Nursing Homes

Office Buildings

Research Facilities

Retail Centers

Resorts

Restaurants

Service stations

Shopping Centers

Sports Facilities

Storage Facilities

Warehouses

Qualifying Properties

WHY IS ENGINEERING EXPERTISE NEEDED FOR THESE REPORTS?

• IRS’ Guides elevate the Detailed Engineering Approach From Actual Cost Records as “the most methodical and accurate approach”– This approach consists of carefully examining all contemporaneous

construction and accounting records– Estimates or “take-offs” are used to supplement the actual cost detail

when the existing detail is not sufficient for the purposes of the study– A professional firm comprised of accountants, and engineers, with prior

cost segregation experience, is required to perform this kind of cost segregation study

• Without the contractor/engineering expertise coupled with the tax law guidance, there will likely be valuable tax benefits left on the table

• Determining 1245 property value on existing properties must be properly documented and appraised and indicated according to the IRS Audit Technique Guidelines

Tangible Property Regulations

• The recent release of the Tangible Property Regulations incorporates these

additional tax benefits to a CRG Cost Segregation Study

Allows a look back at building components that may have been retired in prior years or may be retired in future years.

Determines whether future expenditures should be expensed in the year they are incurred or capitalized over a longer term.

Allows current or prior year building related costs to be expensed as a repair and/or as maintenance cost if certain criteria is met.

Allows commercial property owners to expense remaining depreciation on structural components that have been remodeled or replaced or are no longer in service. Structural or long life assets include:

• Windows, HVAC systems, Lighting/Electrical, Walls, Plumbing, Roofs,

• Parking lots, and Landscape Features.

Energy Policy Act - Section 179D

WHAT IS IT?

• An IRS Code section that allows for a federal deduction for the installation of energy efficiencies in real property. Effective dates from 1.1.2006 through 12.31.2013.

• Energy efficiencies are considered to be:

Lighting, HVAC and Water Heater, Envelope or all of

these as “Whole Building”.

• The deduction for each is $.60/square foot for:

Lighting, HVAC and Envelope or $1.80/square for Whole

Building.

• The opportunity under EPACT 2005 Chapter 13/ 3331 is for a deduction – not a credit.

• Credits are addressed and are allowed for Renewables:

– Solar Investment

– Qualified Fuel Cells

– Microturbine Power Plants

Deductions…Not Credits

The Expired Energy Efficiency Incentives:

• The deduction for commercial building owners who improve

their building’s efficiency by 50 percent compared to a code

baseline (Section 179D);

• The credit to builders who reduce energy use in new homes by

roughly 30 percent compared to a 2006 code-built home

(Section 45L);

• The credit to manufacturers of super high efficiency

dishwashers, refrigerators, and clothes washers (Section 45M);

and

• The credit to homeowners who invest in energy efficiency

improvements that meet certain efficiency criteria, such as a

new high efficiency air conditioner or new windows

(Section25c).

Without an engineering-based studies, taxpayers are unable to take full advantage of the

tax law; therefore, they surrender significant cash flow

to the IRS

Engineering Is Necessary

Car Dealership Case Study

Before Improvements-2007 After Improvements-2013

Car Dealership Case Study Details

This building that was built in 2001 for a cost of $2,360,100. In 2007 a Cost Segregation Study reclassified

$750,707 of 5 year property and $691,384 of 15 year property

• In 2013 General Motors required a $947,486 building improvement.

• The Façade, showroom, administrative offices, sales offices, service greeting area and client lounge

were redesigned or built and some of the existing 39 year components were demolished

• In 2013 CRG prepared a Tangible Property Service® Report and a cost segregation study with the

following results:

• $915,153 in new construction costs were classified into 5, 15 and 39 assets as a result of

• the Cost Segregation Study.

• Client received $533,334 in tax deductions by expensing the remaining depreciation on

• the abandoned components during 2013 as a result of the Tangible Property Study

Place: Riverside County, California

Facility: Warehouse and distribution

Replacement: Flat EPDM Roof in 2006

Square Foot: 205,000

Tangible Property Possible Recoverable Depreciation: $236,550

Case Study - Warehouse

Office Building –24 stories 240,000 sf

Purchased 2005 for $11.5/M

2010 –New windows $2.6/M replacement

Original 2005 windows –depreciable at 39 years established original cost of $730,000.

29 years of depreciation remaining totaling $542,822.00

Additionally the ENVELOPE qualifies under §179D –energy deductions for $144,000.00

Total deduction expense = $686,822.00

Case Study – Office Building

Middle School High School

§179D Case Study-Middle/High School

A §179d Case Study-Middle/High School Results

This project was an upgrade and addition to an existing building. Details:

• 277,050 sq/ft of renovated and newly constructed space

• Construction Cost $86,201,449

• Placed in service on September 4, 2012

• Whole Building qualified for §179D certification

• Architect received $498,690 in federal tax deductions

What Does This mean For You?What Does This Mean for You?

Increased Sales

Repeat Business

Increased Profits

More Referrals

Reduced Taxes

More Pasta and Meatballs

Capital Review Group Credentials

• At Capital Review Group our only business is

discovering, studying and applying the rules of play

that can be applied with advantage to reduce costs

and increase profits. CRG Capital Discovery Program

• We are a national company with presence in most

major cities where we work with professionals and

their clients

• CRG is fully qualified to provide the approved

certification for Cost Segregation Studies, Tangible

Property Services, and EPAct §179D Certifications

Thank You!

For additional information contact:Rich Maiolo

Director of Business Development860.485.8589

richm@capitalreviewgroup.com

www.capitalreviewgroup.com