THE DIRTY LITTLE SECRET ABOUT COST SEG.

If you are a seasoned and knowledgeable real investor, then you know all about Cost Seg… Right??Or… but again, maybe you don’t.

In fact, statistics tell us that 90% of the commercial buildings in the U.S. Have NOT had a Cost Seg study done on them.

Yet Cost Seg is considered to be the greatest tool out there for maximizing spendable, after-tax, cash flow during the first 5 to 7 years of ownership of an income-producing real estate asset. Many swear that the combination of Cost Seg plus 1031 Exchanging to be the “Holy Grail” in minimizing real estate related income taxes for the sophisticated real estate investor. And both of those tax tools have been around for decades.

So, what’s the deal? Why does it appear that the rank-and-file owner of commercial/investment properties often seems unaware of Cost Seg, which is usually a sure winner of greater after-tax cash flow?

I have some theoretical answers to that conundrum which I will share with you here. But first, it may be useful, at least for some readers, to better define what Cost Seg actually is.?It is the abbreviated handle for “Engineered Cost Segregation Study”. It is a recommended tool for U.S. property owners of commercial/investment properties to claim accelerated depreciation, which affords the owner/taxpayer greater after-tax cash flow in the earlier years of ownership.

But there’s a catch. It needs to be done right. If not, it can trigger an IRS audit. No one likes them except IRS auditors. And doing it right is no small task. The IRS publishes a “Cost Segregation Audit Technique Guide” (the AGT) consisting of 8 chapters and virtually reams of pages of instructions. Oh, and the study needs to be done by someone with an engineering background.

As it turns out, only the largest accounting firms in the country have in-house talent possessing the engineering requirements described in the AGT. The rest of the accountants in the country are left with either dealing with the 3rd party Cost Seg Study contractors or trying to get by on their own without the engineering talent. And most of those that are professional would not chance it since causing an audit is an almost sure way to lose a client. And the accounting profession, in general, is not having an easy go of it right now, especially with the challenges of COVID.

There are a lot of Cost Seg Study contractors around the country and in some areas of the country. In Pacific Northwest, for instance, they actively market their services to the accounting community. But almost all of them want their fee, or at least half of it, up-front before they go to work. So, the accountant and the client don’t actually know exactly what the study will generate in the way of savings when they are required to pay.

This leaves the mainstream accountant on the horns of a dilemma: And this brings us to The Dirty Little Secret… The Cost Seg Study is going to cost (depending on the size of the building) say $5k, $10k, $20k, or more. Nobody whose job is to save clients’ money likes to tell them they need to cut a sizeable check to do it.

The accountant may think: “Should I tell the client to cut the check because it will likely be profitable for them in the long run (and of course run the risk of losing the client, especially if the cost of the survey exceeds the tax savings) or should I just ignore mentioning Cost Seg completely figuring that if it comes up later, I can just explain that “I didn’t believe it would be cost-effective in your case”. An unenviable position to be in, no matter how you look at it.

Charles Ray Considine (RIP) the brightest CPA I ever met, had a pat answer to such a dilemma. He’d say: “It all depends… do you want to eat well, or do you want to sleep well”.

It was this very dilemma that pushed me to seek a better way for my consulting clients and their accountants to take advantage of Cost Seg. Some time ago I aligned with a partnership/company named Stryde/GMG Savings (Stryde). They are?a 20+-year-old company that focuses on a myriad of cost and tax remediation tools that are usually utilized by only the 500 Fortune public companies.?

The most notable of those tools to the owner/operator of commercial/investment property is Stryde's nationally renowned and IRS recommended Cost Seg. Stryde has virtually “changed the game” as far as Cost Seg is concerned.

Since many of the most useful cost and tax-saving tools are not really that cost-effective to implement for small to medium-sized privately-owned companies, Stryde specializes in delivering all their services to clients on a performance basis, i.e., if there are no savings, there is no cost.

For Cost Seg, as with all our services, Stryde provides an estimate of the savings in advance. They also agree, in advance, that if the study shows there are savings, the cost for the work will never exceed 10% of the savings. They then do the feasibility study for the work at our own cost. The client does not pay until the savings are known.

Think about it – with that subtle pricing procedure change, Stryde’s financial incentive is the same as the property owner’s… to generate the maximum savings and get it done at a reasonable price. And since Stryde backs their work with their Audit Defense Guarantee it is the classic “win-win situation”.

We even have a special do-it-yourself calculating tool to give you a rough idea of what your savings might be using our Cost Seg.

https://gmg.me/pages/cost-seg-landing/329423

If you like what you see you can even implement the service right there by following through on that site.

And just as a reminder in tax season, there is a “look back” provision for anyone who is switching a building from straight line to Cost Seg allowing one to recompute taxes up to 5 years prior to offset current taxes due or get cash refunds from the feds, plus interest!

Another advantage of using us for Cost Seg is our lower limit of value for the service. Many of the Cost Seg contractors will not bother with anything under $10 million in value. We can make it work as low as $1 million and possibly lower if many of our other services are also involved.

Here are some interesting facts about Stryde:?

They are a company that helps businesses and property owners obtain potentially substantial sums of money through the utilization of known but uncommonly utilized financial tools.?

• Their savings estimating software?has gone through over 1 million studies over the last 24 years has generated over $37 BILLION?in savings delivered?to businesses ($7 million in just the last month)
• Tax Savings per Building/Cost Seg Case averages $180,000.
• No IRS Audits have resulted from the use of Stryde services
• No Shrinkbacks or disallowances of our services by the IRS during client audits triggered by other client matters.
• All Stryde tax tools come with their full?Audit Defense Guarantee

Stryde?Savings ?is privately owned a partnership between two men.?Jason Ziccarelli ?is one of the founders of?Stryde. Jason's cost remediation services were IBS but they're now under the partnership's name,?Stryde.?Ryan Maddock ?is the other founder of?Stryde. The tax remediation services that Ryan has assembled?are shown on his?GMG Savings ?website. As far as the public goes, all the services, whether under the?Stryde?or GMG name, are?Stryde?services.

Please feel free to reach out if there is any way I can help you or answer any questions you may have.

Ron Jarvis

[email protected]