Dugan & Lopatka Real Estate Cost Segregation Services

We have discovered a new and legal way for you to receive secure, meaningful federal, state, and local tax savings.  We work diligently to stay current on IRS positions by constantly monitoring IRS private letter rulings, IRS tax advice memorandums, IRS revenue procedures, the Internal Revenue Code and proposed, temporary and final tax regulations.  After careful research and examination, we have determined that significant tax savings can be achieved by accelerating income tax depreciation deductions permissible only recently by the IRS Procedures 2002-18 and 2002-19.

Valuable Tax Savings Imbedded in Buildings
Under IRS Procedures 2002-18 and 2002-19, the IRS permits the acceleration of depreciation of some assets that traditionally would be imbedded into the cost of buildings.  In essence, they are allowing us to carve out shorter-lived assets (qualifying for 5,7, and 15 year write-off periods) that are normally imbedded in a building’s construction or acquisition costs (generally depreciated over 39 years).  To meet IRS acceptance rules, an engineering-based cost segregation study must be conducted and used to justify the accelerated depreciation.

A cost segregation study involves identifying and properly reclassifying the capital amounts allocated to tangible personal property, other tangible property (i.e., IRC Section 1245 property), and land improvements from building costs.

We will work with you in “mining out” these buried savings from:

• New buildings presently under construction.

• Existing buildings undergoing renovation, remodeling, restoration, or expansion.

• Prior purchases of existing property.

• Office/facility leasehold improvements and “fit outs”.

• Post-1986 real estate construction, building acquisitions, or improvements where no cost segregation study was performed (even though the statute of limitations previously closed on the property construction/acquisition year).

Profit from the benefit of cash flow savings!  For every million dollars of property you reclassify for faster depreciation write-offs, the present value of your increased cash flow from income tax savings approximates $230,000.

What Does A Cost Segregation Study Entail?

During a cost segregation study, we:

• Physically inspect the property.

• Examine architectural/engineering drawings and specifications for potential asset reclassification.

• Analyze cost data, including the contractor’s application of payments, change orders, owner-incurred costs, and indirect disbursements. 

• Prepare an itemized list of property units qualifying for shorter-life classification based on relevant income tax authorities.

• Apportion direct labor, material components, and indirect costs based on engineering drawings/specifications.

• Reconcile total costs per the engineering analysis to capitalized project costs.

You Save $10 (At Least) in Benefits for Each Dollar Invested in Your Cost Segregation Study!

You get a tremendous payback for your investment in professional fees.  Clients routinely receive present value cash flow savings at 10 to 20 times their investment for the study.  Our cost segregation study truly maximizes the value of your real estate assets.

Other Compelling Benefits:

Sales/Use Tax Benefits—Many states provide relief for tangible personal property used in manufacturing.  Other states have exemptions for property used in research and development.  Supporting these incentives is cumbersome, but we make it easy for you and optimizes your sales and use tax exemptions.

Property Tax Relief—There are excludable costs in your company’s tax base.  Specifically, overtime hours, building demolition costs, and select change orders may be exempt from a building’s tax base in certain jurisdictions.  We help you “wring out” excessive property taxes from your facility.

Other Credits and Incentives—Many states provide special tax credits, incentives, or abatements for new construction that our team of specialists can help you secure.

Enjoy the Windfall For Real Property Built or Acquired Previously
You now have a valuable opportunity, courtesy of the IRS, if you constructed or purchased real estate in a prior year but did not take advantage of a cost segregation study.  This IRS gift horse allows you to prospectively deduct (over a one-year period) depreciation amounts that you were legally entitled to but did not claim (e.g., due to erroneous property classification as a 39-year depreciable building).

This cash flow windfall is available to you even though the statute of limitations previously closed on the property construction or acquisition year.  Our cost segregation team has the engineering and appraisal skills to “carve out” the overlooked shorter-life assets and file the necessary IRS paperwork to recover your tax deductions.

Example: Light Manufacturer acquired a facility four years ago for $6 million.  Based on the cost segregation analysis, Dugan & Lopatka engineers determined that 30% of the building qualifies for short-life classification.  By performing the cost segregation study, and filing required accounting method change documents, Dugan & Lopatka creates present value cash flow savings from tax reduction approximating $310,000!

A Solid Case for An Engineering-Based Approach
Cost segregation is not new, per se.  In fact, we may have done a previous cost segregation study for you.  The difference is that the IRS has changed the rules.  It will no longer accept the accounting-based cost segregation methods commonly used by traditional CPA firms.

With our engineering-based cost segregation study, you have indisputable evidence for massive tax savings that will withstand governmental agency scrutiny.  We base our analysis on  all construction documents and physical examinations, not just invoices.  We provide full documentation, employing engineering and cost estimating procedures recognized in IRS rulings and judicial decisions.  A complete “audit trail” traces derived unit costs from contract documents and other source data.  Your property is categorized into shorter-life classes based on applicable tax authorities.  And should a tax authority challenge our cost segregation study and the acceleration of depreciation, rest assured, we will be there to defend our position.

Can My General Contractor Do the Study?
Cost segregation is a highly specialized segment of tax law.  The volume of judicial decisions, IRS rulings, regulations, and other interpretations span thousands of pages of text.  The challenge is to apply this complex knowledge to the unique facts of your industry, your company’s circumstances, and the processes of your operation.  Dugan & Lopatka and our Cost Segregation Partners have conducted thousands of cost segregation studies throughout the United States. We bring vast practical resources to your project.

Why take unnecessary risks?  A general contractor who segregates percentages of construction costs based on invoices or other means will likely leave valuable tax benefits “on the table”.  Moreover, the foregoing will likely not withstand IRS examination.

We work in tandem with your general contractor to serve your best interests and save you money!

To learn more about our engineering-based cost segregation studies, call Jerry Lopatka at (630) 665-4440 or e-mail him at This e-mail address is being protected from spambots. You need JavaScript enabled to view it