In an Engineering based Cost Segregation study, all the major components of a property are identified and valued. Therefore, these values, singularly and collectively, may be adjusted up or down to the Basis (Property value recognized by the IRS ) for tax purposes.

Non-engineered Cost Segregation methods, commonly referred to as "Cherry Picking", "Residual Cost" and "Rule of Thumb", do not meet the Internal Revenue Service's "13 Elements of Quality" requirements published in 2004, hence are at risk with respect to audit. The following is a comparison of the Cost Segregation methods of an engineered Cost Segregation study vs. a non engineered Cost Segregation study:
Key Engineered Study Advantages
Engineered By AEON Non-Engineered Study
Feature Benefit Feature Limitation
Comprehensive, highly detailed Cost Segregation study and complete analysis. IRS States: "... this is the most time consuming method and provides the most accurate cost allocations." Obvious personal property items are picked. Inability to reconcile short lived costs to the total project, "...can produce a skewed result."
Compliant with IRS "Audit Techniques Guide" Meets or exceeds all of the IRS "13 Elements of Quality" Components costs for personal property only. With component costs for the Real Property not derived, computed costs for Real Property are in error.
Detailed component costs for both Real and Personal Property. Ability to fully write down dispsed assets during remodel, demo or replacement. Components such as HVAC or roofs not sufficiently documented. When components are replaced, remaining book value cannot be written-down.
Complete documentation provided, including reconciliations and work papers. Comprehensive documentation in CPA and IRS accepted format. Does not meet IRS requirements. Introduces risk.
All major components are analyzed and documented. Provides for the maximum possible benefit from the Cost Segregation process Major components left unidentified. Limited benefit from the process.
Work performed by engineers and Cost Segregation specialists. IRS stats. "... requires the knowledge of both the construction process and the tax law." Less professional knowledge required. May not be defensible under IRS audit.
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