Presenting a live 110 ‐ minute teleconference with interactive Q&A Cost Segregation Studies: Best Practices Reclassifying Business Personal Property to Achieve Income and Property Tax Benefits THURSDAY, APRIL 5, 2012 1pm Eastern | 12pm Central | 11am Mountain | 10am Pacific 1pm Eastern | 12pm Central | 11am Mountain | 10am Pacific Today’s faculty features: Daniel McGrath, Director, Grant Thornton , Chicago , , , g Gian Pazzia, Principal, KBKG Inc. , Pasadena, Calif. Julio Gonzalez, Founder and CEO, Engineered Tax Services , West Palm Beach, Fla. Dennis Duffy, President, Duffy + Duffy Cost Segregation Services Inc. , Westlake, Ohio For this program, attendees must listen to the audio over the telephone. Please refer to the instructions emailed to the registrant for the dial-in information. Attendees can still view the presentation slides online. If you have any questions, please contact Customer Service at1-800-926-7926 ext. 10 .
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Cost Segregation Studies: Best Practices C t S ti St di B t P ti Seminar April 5, 2012 Daniel McGrath, Grant Thornton Dennis Duffy, Duffy + Duffy Cost Segregation Services Inc. daniel.mcgrath@ us.gt.com dduffy@ costsegexperts.com Julio Gonzalez, Engineered Tax Services Gian Pazzia, KBKG Inc. gian@ kbkg.com jgonzalez@ engineeredtaxservices.com
Today’s Program Reasons To Perform A Cost Segregation Study Reasons To Perform A Cost Segregation Study Slide 7 – Slide 12 Slide 7 Slide 12 [Dennis Duffy] When To Start The Process With A New Facility Slide 13 – Slide 16 [Daniel McGrat h] [Daniel McGrat h] Performing A Retroactive Study Slide 17 – Slide 21 [Daniel McGrat h] Applicable Rules, Standards And Guidance Slide 22 – Slide 41 [Gian Pazzia] Designing A Study With Defending It In Mind Slide 42 – Slide 46 [Julio Gonzalez and Dennis Duffy] Slide 47 – Slide 50 Slide 47 – Slide 50 Experiences With Audits Experiences With Audits [Dennis Duffy, Daniel McGrat h, Gian Pazzia, Julio Gonzalez]
Dennis Duffy, Duffy + Duffy Cost Segregation Services Inc. REASONS TO PERFORM A REASONS TO PERFORM A COST SEGREGATION STUDY
Standard Features Of The Cost Segregation Process Segregation Process Gather basic information about the property and the owner’s • tax situation Prepare a projection of the accelerated depreciation and an • estimate of the net present value of the deferrals estimate of the net present value of the deferrals Evaluate estimate cost and other tax ramifications, and • discuss with owner If a study is desirable, gather construction drawings, • specifications and cost data Perform site visit to verify drawings, take photos and gather y g , p g • further information Prepare and deliver report • 8
Reasons To Perform A Cost Segregation Study Cost segregation studies can provide property owners with accelerated depreciation deductions that defer income tax. Many property owners are unaware of the benefits of cost segregation. Many owners do not know that studies can be applied retroactively to properties acquired in the past applied retroactively to properties acquired in the past. The accelerated depreciation deductions generated do not p g require an additional cash outlay. 9
Identifying Construction ‐ Related Costs That y g Can Be Depreciated Over A Shorter Life Separates non-structual elements, exterior land improvements and indirect • conctruction costs conctruction costs ― Tangible personal property (Sect. 1245 property) ― Not “structural components” of a building ― Does the item relate to the operation or maintenance of the Does the item relate to the operation or maintenance of the building? ― Land improvements ― Can be Sect 1245 or Sect 1250 property Can be Sect. 1245 or Sect. 1250 property ― Does not include costs inextricable to the land ― Indirect construction costs ― “Soft costs” such as permits architect fees builders overhead and “Soft costs” such as permits, architect fees, builders overhead and profit ― Indirect costs can be allocated to the asset to which they relate. 10
Adjusting Timing Of Depreciation To Maximize Cash Flow For Other Purposes For new construction : Significantly higher deductions in the early years, amplified by bonus depreciation and a higher Sect. 179 limit For existing properties : Immediate recapture of retroactive deductions on property acquired since 1987 ― “Catch-up” Sect. 481A adjustments, taken in year of change witout amending! ― In certain circumstances, this may produce a net In certain circumstances, this may produce a net operating loss that can be carried back to produce refunds of tax paid in previous years. 11
R d Reducing Property Tax i P T Studies can be used for property tax appeals. A study conducted before property acqusition may be used to specify personal property tax. ― Personal property enumerated in purchase agreement ― May reduce transfer tax on real estate 12
Daniel McGrath, Grant Thornton WHEN TO START THE WHEN TO START THE PROCESS WITH A NEW FACILITY
C Current ‐ Year Study Process Y S d P When to begin • ― New construction/expansion/remodel ― P Pre-construction t ti ― Formal process ― Informal process Informal process ― During construction ― Formal process Formal process ― Informal process ― Post-construction ― Acquired facility 14
Current ‐ Year Study Process (Cont.) C Y S d P (C ) Whom to involve • ― Internal personnel ― VP of tax/Director of tax/Tax manager ― Head of construction or real estate/Project engineer/Facility manager ― Fixed asset manager g ― IT representative ― External expertise ― Cost segregation provider ― Tax compliance provider ― Contractor personnel Contractor personnel ― Project architect/Engineer 15
Current ‐ Year Study Process (Cont.) C Y S d P (C ) Co-sourcing opportunities g pp • ― Scope of work ― New construction ― Acquisition ― Pros ― Potentially reduced professional fees Potentially reduced professional fees ― Increased tax department involement in fixed asset decisions and operations ― Work for under-utilized personnel ― Cons ― Personnel time demands Personnel time demands ― Fee reductions less significant than anticipated 16
Daniel McGrath, Grant Thornton PERFORMING A RETROACTIVE STUDY
R Retroactive Studies i S di Ability to apply cost segregation to prior-year assets • Typically yields more significant benefits than a current-year study • ― Porfolio of properties ― Small projects for which current year cost seg didn’t make sense ― Prototype facilities utilizing statistical sampling ― Assets placed in service since 1/1/87 Assets placed in service since 1/1/87 ― Current-year Sect. 481(a) ”catch-up” adjustment ― Bonus depreciation and qualified leasehold improvement property Form 3115 automatic change in accounting method • Can complete study up until extended due date of return • Additional opportunities related to expensing repairs pp p g p • 18
Retroactive Studies (Cont.) R i S di (C ) Types of assets to include • ― Constructed/expanded/remodeled buildings ― Acquired buildings (asset or stock deals) ― B ild Build-out of leased space f l d ― Project indirect costs ― One-off asset additions One off asset additions ― Replace carpeting ― Add computer room A/C ― Network cabling ― Parking lot expansion ― New production line New production line Whom to involve • 19
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