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The third piece of Cost Seg is Legal Analysis. Once Echo has the costs for all the items, it needs to evaluate each item under the current Cost Seg body of law. This process without a doubt is vital and quite complicated. Although it has evolved, there is conflict in the law, it’s a little dicey.
Echo has to leverage court cases against the facts and circumstances of your property, to determine which items can be reclassified from Section 1250 real property to Section 1245 personal property.
Then it applies what’s called the MACRS Asset Classification System accordingly. Then Echo can recompute depreciation based on each item’s life, method and convention, and calculate that catch-up depreciation, if available.
Ultimately, Echo will be able to complete the complicated tax Form 3115 – Change in Accounting Method to be included in the owner’s next tax return.
The second step in Cost Seg is Construction Cost Estimating (CCE). Echo is going to review the supporting documents you gather – and extract any pertinent project data. Echo then does quantity takeoffs from the drawings (if you have any) – and your pictures from the field.
In the CCE step – Echo’s construction cost analysis is going to use your submitted info to build up the cost to re-build the building submitted. If you built the building (or you have actual costs) Echo will use that data, but if you don’t, we’ll rely on our database of national construction cost data.
Echo has the construction experience to determine what it would cost to build that building today, as it sits when you did the OSV. This concept is called “Reconstruction Cost New”, or “RCN”. This is a very important legal concept. There are consultants out there that don’t do it right. They do not account for all the pieces and parts of the project. They only account for the items that they believe can be reclassified as personal property.
However, until you gain ALL of the pieces – including the total cost (RCN) – and then pro-rate all these costs so it adds up to what the investor actually paid for it – you don’t really know what the cost of the these personal property items actually is. So once Echo has the RCN – we will do the proration – so that everything ties out of the basis of the building that’s currently on the Fixed Asset Schedule.
Field Work is the first step in performing Cost Segregation. If you read the audit guidance from the IRS on Cost Seg, someone’s got to go to the field. It’s called an “On-Site Verification”, or “OSV”. Although we have to verify the assets exist, Echo makes this very easy.
The coolest part of Echo is the mobile app – a tablet-friendly, off-line app that walks you through the On-Site Verification (OSV) very efficiently. To go to the field, though, you’ll first have to gather any available Supporting Documentation – and load them into Echo. Don’t worry – Echo walks you through it.
Once your Supporting Docs are addressed – Echo then gives you training and support on the mobile app – so you can be thorough and efficient in the field. You’ll sync up Echo’s mobile app when you’re in the office, while you’re on WiFi, then go to the field off-line, and capture all your field data without burning up your data plan. You can do this on a smart phone if you want – but generally a tablet’s bigger screen will make it easier on you.
Echo’s mobile app will allow you to systematically capture all the photos and quantities you need to get when you’re in the field. You don’t need any construction experience; you don’t need to know anything! Echo is going to teach it to you, and the app guides you the whole way.
Then, once you get back to your office or house, and you’re back on WiFi, you’ll click one button that automatically sends all your data to Echo’s secure servers. You’re not on data when you’re out in the field, and you don’t touch the data twice. This is a key component to the efficiency of the Echo Solution.
If you currently run a Cost Seg practice – you can leverage our technology to drive significant efficiencies in all of your Cost Seg projects.
Head over to The Echo Solution by clicking below – there you will learn our entire system and have the ability to get started today!
If you own your own commercial real estate and have a do-it-yourself mentality – we can support you in capturing your own Cost Seg benefits at a fraction of the cost of hiring someone to do it for you.
Check out The Echo Solution, below – and start your Cost Seg project today!
If you have clients that own any commercial real estate – we can support you in offering Cost Seg internally without the cost of an in-house engineer or outsourcing to a third-party consultant.
Take a look at The Echo Solution, below, to see how it works and get started today!
If you’re in the business of providing advanced financial strategies – we can teach you how to run your own Cost Seg practice to better serve your commercial investor clients.