Materials Cost Segregation

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CS 101: Overview of Cost Segregation

Presented by:

Gian P. Pazzia, Civil Engineer

A Commitment to Excellence for Over 60 Years

Overview ƒ ƒ ƒ ƒ ƒ ƒ ƒ ƒ ƒ

What is Cost Segregation? The Benefits History & Legal Framework When & How Should A Study Be Done? Depreciation Rules The Deliverable Tax Issues Case Study How to measure potential opportunities

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1

What Is A Cost Segregation Study? ƒ A formal engineering process acceptable to the IRS ƒ Identifies building costs and land improvements - traditionally depreciated over 27.5 or 39 years ƒ Re-allocates a significant portion of these Section 1250 “building” costs to asset classes with shorter depreciable lives.

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What Is A Cost Segregation Study? Before

After

39 Year 31.5 Year

=

Or 27.5 Year

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39 - Year 31.5 - Year 27.5 - Year 15 - Year 7 - Year 5 - Year 3 - Year or Expensed!

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2

Tax Lives ƒ R.P. 87-56 (approximately 135 asset classes) ƒ Qualifying construction costs from the property should be depreciated over 3, 5, 7, and 15 years. ƒ This results in: ƒ Accelerated depreciation deductions ƒ A reduced tax liability ƒ And an increase in cash flow KBKG, INC. COST SEGREGATION SPECIALISTS

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Benefit: Accelerated Depreciation Deductions

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Benefit: Accelerated Depreciation Deductions The depreciation for a property with a Cost Segregation Study allows for significant increase in deductions within the first 5 years.

For $100,000 of cost shifted from 39-year property to 15-year property, the present value tax benefit is approximately $12,000.*

Deductions in $1,000s

For every $100,000 of cost shifted from 39-year property to 5-year property, the present value tax benefit is approximately $22,000.*

Depreciation Deductions By Year: $5M Office Building

*These benefits assume a combined tax rate of 41% and a Return on Investment factor of 8%. They are even higher if Bonus Depreciation or Section 179 applies.

Without a Cost Segregation Study With a Cost Segregation Study

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History of Cost Segregation ƒCost Segregation has been around since the 1960’s. ƒThere have been over 200 court cases and IRS rulings supporting the benefits of Cost Segregation. ƒThe initial cases were related to the Investment Tax Credit (ITC) and whether items related to a structure could qualify for the credit. ƒ Whiteco Industries, Inc. (Billboards) ƒ Scott Paper Co. (Electrical Distribution Systems) ƒ Morrison, Inc. (Kitchen Electrical Panel Boards) ƒ Illinois Cereal Mills (Electrical Distribution Systems) KBKG, INC. COST SEGREGATION SPECIALISTS

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Whiteco Factors Tax Court’s first attempt at creating a test 1975, the Tax Court based on analysis of judicial precedent, developed six questions designed to ascertain whether a particular asset qualifies as tangible personal property. These questions are referred to as “Whiteco Factors.” 1.

Can the property be moved and has it been moved?

2.

Is the property designed or constructed to remain permanently in place?

3.

Are there circumstances that show that the property may or will have to be moved?

4.

Is the property readily moveable?

5.

How much damage will the property sustain when it is removed?

6.

How is the property affixed to land?

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Scott Paper Company ƒ 1964 Build out ƒ Increased Capacity ƒ Primary & Secondary Electrical Distribution Systems ƒ Traced electrical load directly to equipment ƒ Tangible vs. Real Property

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5

Hospital Corp of America v. Commissioner ƒ In the landmark Hospital Corporation of America Case 109 TC 21 (1997) the courts further expanded the benefits of Cost Segregation. ƒ The Court ruled that certain costs related to specific ordinary use equipment (that otherwise would be viewed as structural) qualified to be depreciated over the life of the underlying asset. ƒ In 1999 the IRS issued a memorandum in which it acquiesced to the Tax Court Ruling.

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HCA Breakdown ƒ ƒ ƒ ƒ ƒ ƒ ƒ ƒ

Electrical Distribution (1245) Branch Wiring (1245) TV Wiring (1245) Telephone/Communications equipment wiring (1245) Carpeting (1245) Vinyl Wall Covering (1245) Vinyl Floor Covering (1245) Kitchen Water Piping/Steam lines & X-ray plumbing (1245)

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ƒ Kitchen Hoods/Exhaust Systems (1245) ƒ Patient Handrails (1245) ƒ Overbed lights (1250) ƒ Partitions (1245) ƒ Bathroom Accessories (1250) ƒ Acoustical Ceilings (1250) ƒ Steam Boilers (1250) No logical method for allocation

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Chief Counsel Guidance IRS Chief Counsel issued guidance to the Service on May 28, 1999. Guidance stated the following: Š The determination between tangible and structural property is a facts and circumstance assessment. Š The use of cost segregation studies must be specifically applied by the taxpayer. Š Allocations must be based on logical and objective measure. Š An accurate cost segregation study may not be based on non contemporaneous data, or assumptions that have no supporting records. Š Cost Segregation Studies will be “scrutinized by the field”

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Recent Changes ƒ In March 2002 the IRS issued Rev Proc. 2002-19 allowing automatic depreciation accounting changes created by a Cost Segregation Study for prior years to be expensed in one year, instead of spread over four years, as had previously been accepted. IRC Section 481 Adjustment reported on Form 3115. ƒ In January 2004 the IRS issued Rev Proc. 2004-11, which further simplified the process allowing tax payers to prepare a form 3115 even if an accounting method had not been established. ƒ An Accounting method is established when a taxpayer follows a particular method of reporting information for two consecutive years.

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Recent Changes IRS Audit Techniques Guide ƒ Issued April of 2004 and Modified January of 2006 ƒ Developed to assist field agents in reviewing Cost Segregation Studies ƒ How they should be prepared. ƒ What to review and look for. ƒ When to call in IRS Engineers.

ƒ To access the Cost Segregation ATG, go to www.costsegregation.biz

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Cost Segregation Audit Techniques Guide Detailed Cost Approach “It is the most methodical and accurate approach” IRS, CS ATG ƒ “Inspect the facility to determine the nature of the

project and its intended use” ƒ “Review "as-built" blueprints, specifications, contracts, bid documents, contractor payment requests, and other construction documentation” ƒ “Prepare quantity takeoffs” ƒ “Reconcile total costs obtained from quantitative take-offs to total actual costs”

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When Should a Study be Done? The optimal time to perform a study is the year the property is placed in service However, current IRS procedures allow a taxpayer to recover any missed depreciation on properties placed in service as far back as 1987 without having to amend prior years tax returns.

Year built, purchased, or remodeled

Current Year

1987

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Applies to: Š New Construction Š Acquired Property (as far back as 1987) Š Remodeled Property (as far back as 1987) Š Build-outs (as far back as 1987) ACQUIRED PROPERTY

NEW CONSTRUCTION Indirect Costs + General Contractor Costs + Direct Costs outside General Contract

OR

Purchase Price Land Cost Building and Site Implementation Cost

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MACRS - GDS

=

39 - Year Property 27.5 - Year Property 15 - Year Property 7 - Year Property 5 - Year Property 3 - Year Property or Expensed!

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9

Cost Segregation Process ƒ During a cost segregation study a cost segregation specialist/engineer will: ƒ Tour the site ƒ Review information Š Blue Prints, Cost Documents, Appraisals etc.

ƒ Account for the value of all components Š By using estimates or invoices

ƒ Determine which components qualify ƒ Allocate construction indirect costs ƒ Reconcile estimates to the purchase price

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Tax Laws For Qualifying Assets

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Tax Laws For Qualifying Assets

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Tax Laws For Qualifying Assets

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Tax Laws For Qualifying Assets

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Tax Laws For Qualifying Assets

39- Year Property: Finally, all other types of buildings are depreciated over 39 years

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Documentation ƒ The process should also include ƒ A full review of the company’s fixed asset records ƒ Photo documentation for assets that are treated with a short life ƒ A thorough narrative of the property characteristics ƒ References to the exact source of costs for all engineering estimates ƒ An evaluation of the physical condition of every component ƒ An evaluation of the “facts and circumstances” surrounding the use & construction of each item ƒ Substantial authority for the 1245 treatment for all assets KBKG, INC. COST SEGREGATION SPECIALISTS

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Cost Segregation Methodologies ŠDetailed Cost Approach (Construction) ŠDetailed Engineering Cost Estimate Approach (Usually Purchase) ŠResidual Estimation Approach ŠSampling or Modeling Approach Š“Rule of Thumb” Approach (Not Acceptable)

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Report Outline Purpose and scope of the engagement Study Procedures/Methodologies Tax Considerations ƒ Definition of 1245 Property, 1250 Property, Land Improvements ƒ MACRS Categories ƒ ADR Classifications

Asset Class Codes – Specific to the subject property Description of the Property Substantial authority for the treatment of assets Photographs of the facility & qualifying assets Detailed Analysis Schedules

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Qualifying Projects Building Type

Average Re-Allocation

20-35% Apartment Buildings 20-40% Retail Stores Restaurants 20-45% Office Buildings 10-25% Manufacturing Facilities 20-60% Research & 30-60% Development Wineries 20-45% Grocery Stores 25-45% Hotels 25-45% Warehousing 10-25%

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Other Projects Include: ƒ Shopping Malls ƒ Airports ƒ Sports Facilities ƒ Golf Courses & Ranges ƒ Auto Dealerships ƒ Resorts ƒ Healthcare facilities ƒ Medical Centers ƒ Industrial Buildings ƒ Distribution Centers ƒ Auto Service Centers ƒ And more www.costsegregation.biz

14

Example 1 Office Building Current Year Acquisition Review the following example: a taxpayer purchased a $5 million office building without Furniture, Fixtures, & Equipment. Without a Cost Segregation Study the costs are depreciated over 39 years. In this illustration with a Cost Segregation Study, the specialist finds:

With a Cost Segregation Study

Of $5 Million: $750,000 depreciated over 5-7 years

$5 Million Depreciated over actual life of assets

$500,000 depreciated over 15 years $3,700,000 depreciated over 39 years

Increased Depreciation Deductions in the first 5 years: $750,000 Projected Benefits: $235,000 *These benefits assume a combined tax rate of 41% and a Return on Investment factor of 8%. Benefits are even higher if building is eligible for Bonus Depreciation and/or Section 179.

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Example 2 Look-back Study for a Leasehold Build-Out: Retail In this second example we consider a property that was placed in service five years ago. Without a Cost Segregation Study this $1 million retail buildout was being depreciated over 39 years. With a Cost Segregation Study the specialist finds: With a Cost Segregation Study

Of $1 Million $450,000 depreciated over 5 years

$1 Million Depreciated over actual life of assets

Remaining costs continue to be depreciated over 39 years

Increased Depreciation Deductions in the first year: $386,000 Projected Benefits: $104,000

*These benefits assume a combined tax rate of 41% and a Return on Investment factor of 8%. Benefits are even higher if building is eligible for Section 179. KBKG, INC. COST SEGREGATION SPECIALISTS

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15

Defining Tangible Personal Property Hundreds of cases that often times conflict A lot of room for interpretation Because of this, the IRS prefers a study to be done by a qualified professional familiar with the extensive case law.

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Tangible Property Real Property ƒ ƒ ƒ ƒ

Land Land improvements Buildings Building improvements

Personal Property ƒ Business machinery equipment ƒ Office furniture and fixtures ƒ Appliances that are furnished to tenants

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Land Improvements Asset Class 00.3 Includes improvements directly to or added to land, whether such improvements are section 1245 property or Section 1250 property, provided such improvements are depreciable. Examples of such assets might include: ƒ ƒ ƒ ƒ ƒ ƒ

Sidewalks Canals Sewers Wharves Fences Landscaping

ƒ ƒ ƒ ƒ ƒ ƒ

Roads Drainage facilities Waterways Docks Bridges Shrubbery

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“Building” IRS Defined Any structure or edifice: Enclosing a space within its walls Usually covered by a roof The purpose of which is to provide shelter for housing, or To provide working, office, parking, display or sales space

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“Structural” Components: IRS Defined Includes such parts of a building: ƒ Walls and partitions ƒ Floors and ceilings ƒ Windows and doors ƒ Central air conditioning or heating system including motors, compressors, pipes, & ducts

ƒ Plumbing and plumbing fixtures such as sinks, bath tubs, & sprinklers ƒ Electric wiring and lighting ƒ Chimneys ƒ Stairs ƒ Elevators ƒ Fire Escapes

Any other components relating to the operation or maintenance of a building KBKG, INC. COST SEGREGATION SPECIALISTS

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Section 1245 Property - Tangible Personal Property Any tangible property except: ƒLand and improvements thereto ƒBuildings or other inherently permanent structures (including items which are structural components of such buildings or structures)

Property which is contained in or attached to a building (other than structural components) Property which is in the nature of machinery (examples: gas pump, car lift etc..)

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Section 1245 Property - Other Tangible Property Any other tangible property (but not including a building and its structural components) Used as an integral part of manufacturing, production, or extraction Used as an integral part of furnishing transportation, communications, electrical energy, gas, water, or sewage disposal services by a person engaged in a trade or business of furnishing any such service Constitutes a research or storage facility used in connection with any of the foregoing activities KBKG, INC. COST SEGREGATION SPECIALISTS

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Real Property or Personal Property? Building Component vs Accessory to the Taxpayer’s Business Š Does the property serve no more than an incidental relationship to the operation or maintenance of the building?

Relation to Machinery and Equipment Š Is the property inextricably linked to specific equipment or is it reasonably adaptable to more general uses?

“ONE THING IS CLEAR, THE FEDERAL INCOME TAX LAW IS UNCLEAR REGARDING THE DISTINCTION BETWEEN PERSONAL AND REAL PROPERTY”

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Chief Counsel Advice 199921045 In 1999, the IRS issued Chief Counsel Advice in response to Hospital Corp of America “The determination of whether an asset is a structural component or tangible personal property is a facts and circumstances assessment” “No bright line test exists”

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Special Tests for Property Qualification Permanency Test (Whiteco Test) An item may qualify for a lower life if it is ƒ easily removed ƒ is designed for easy removal ƒ does not require substantial effort to remove ƒ has an expected length of stay less than the overall life of the building ƒ does not create undo damage upon removal ƒ has a history of removal. KBKG, INC. COST SEGREGATION SPECIALISTS

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Special Tests for Property Qualification Sole Justification Test An item may qualify for a lower life even though it is structural component of a building if ƒ it is necessary to meet specific temperature or humidity requirements essential for the operation of the machinery, or ƒ the processing of materials or foodstuffs

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Special Tests for Property Qualification Accessory Test An item may qualify as lower-life property, even though it is ƒ permanently affixed, if it is an item necessary for the taxpayer to carry on his particular trade or activity.

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Special Tests for Property Qualification Unitary Concept Test When establishing the basis of an asset, ƒ the entire asset as well as the supporting features such as electrical connection and plumbing connections, must be viewed as one single asset.

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Special Tests for Property Qualification Incidental Use Test – An item may qualify for a lower life as tangible personal property, even though ƒ it has some incidental use necessary for the operation or maintenance of a building. (Special Fire Suppression)

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KBKG White Papers Movable Wall Partitions ƒ History and process of reconfiguration Freestanding Parking Structures ƒ Construction methods Special Purpose Structures ƒ Relationship to the equipment it houses KBKG, INC. COST SEGREGATION SPECIALISTS

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Tax Planning & Other Benefits ƒ ƒ ƒ ƒ ƒ

Leasehold Improvements Real Estate Professional 1031 Exchanges Estate Tax Benefits Property Tax Issues

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Planning Opportunity - Lessee ƒ Stipulate in the lease that the landlords allowance is for – 1250 property. ƒ Increases the lessee’s ability to allocate more value to shorter life property. See Case Study

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Real Estate Professional ƒ Qualification ƒ Opportunity – losses offset even “ordinary” income ƒ Net Operating Losses may be eligible for carryback

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Tax Planning Opportunities and Issues Š Pre 1031 planning Š Post 1031 planning Š State Law Prevails for 1031

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1031 Exchange – Step 1 (State Law Controlling Definition) REAL PROP Land 1250 (Bldg) 1250(Land Imp) 1245 (non FF&E)

PERSONAL PROP 1245 (FF&E)

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REAL PROP Land 1250 (Bldg) 1250(Land Imp) 1031x

1245 (non FF&E)

PERSONAL PROP 1245 (FF&E) www.costsegregation.biz

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1031 Exchange – Step 2 (Address Recapture Issues by Fed Law) REAL PROP Land 1250 (Bldg) 1250 (Land Imp)

REAL PROP 1245(non FF&E) PERSONAL PROP 1245 (FF&E) KBKG, INC. COST SEGREGATION SPECIALISTS

REAL PROP Land 1250 (Bldg) 1250 (Land Imp) 1031x

REAL PROP 1245(non FF&E) PERSONAL PROP 1245 (FF&E) www.costsegregation.biz

Estate Tax Benefits ƒ Using a cost segregation study as part of Estate Tax Planning ƒ How can I depreciate the same property more than once?

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Estate Planning Concept Example – Year 1 ƒ Property acquired by husband and wife 5 years ago for $1M ƒ Cost Segregation Study is performed and $200K of 5 year assets are segregated ƒ 3115 is filed and current year return includes a $200K 481 adjustment.

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Estate Example – Year 2 ™

Husband dies and property receives step up in basis to $2M.

™

Wife has cost segregation study performed and $400K in 5 year assets are segregated and depreciated over next 5 years.

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Property Tax Issues Š Real vs. Personal Property ƒ State law vs. Federal Laws ƒ Appreciating tax base (real) vs. depreciating tax base (personal) ƒ Initial property assessment vs. subsequent adjustments

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IRS Audit Issues IRS will conduct the following steps if examining a Cost Segregation Study ƒ ƒ ƒ ƒ

Interview the preparer Inspect the property Review a Copy of Study & Report Verify cost basis and reconcile depreciation records ƒ Review and verify classes of property ƒ Conduct a risk analysis to evaluate audit potential

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Interview The Preparer Were the properties inspected at the time of the study? Were photographs relied upon when classifying property? What cost estimating guides were used? What documentation was used to establish the cost basis and use of a property item? How was the cost of each property item identified? Where are the workpapers?

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Inspecting The Property Auditor will tour site and inspect questionable items. Auditor will request preparer to attend tour to explain physical attributes of specific assets how they were classified. Discuss methodology that was used to determine cost of assets. Were standard cost guides used to estimate costs? Auditor will ask on-site maintenance and facility operations personnel about local construction and repair costs in order to verify the estimated costs in a study.

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Case Study Consider the following example: Š A company recently constructed a Restaurant for $1,543,225. A Cost Segregation Study was subsequently performed and construction related costs were reclassified to the proper depreciable lives. The following pages detail the results.

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Summary of Benefits Without Cost With Cost With Cost With Cost With Cost Segregation Segregation Segregation Segregation Segregation (39 Years) (5 Years) (7 Years) (15 Years) (39 years)

Project-related costs identified

$ 1,543,225 $ 558,155

$

15,790

$

47,531

$ 921,749

First 7 years depreciation

$ 257,192

$

15,086

$

23,675

$ 153,619

$ 558,155

Potential increase in first 7 years income tax deferral Potential net present value over the life of the project

Total Net Increase in Benefits

$ 493,343

$ 222,004

$ 150,758

Tax savings assumes 45% combined rate KBKG, INC. COST SEGREGATION SPECIALISTS

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Qualifying an Opportunity Generally: ƒ Basis in “building” (less land cost) > $750,000 ƒ Can be less than $750,000 if there are multiple properties

ƒ Basis in leasehold improvements > $400,000 ƒ Placed in service after 1987 ƒ Ideally placed in service 5-7 years ago

ƒ Taxpayer must need deductions!

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Qualifying an Opportunity Information needed for an accurate estimate of savings: ƒ ƒ ƒ ƒ ƒ ƒ ƒ ƒ ƒ

Type of Property/Nature of Industry Placed in Service Date Involvement in a 1031 exchange? Property Cost Basis Square Footage of Building and Site Number of Tenants? (if leased) Type of Parking? Major Renovations/Improvements made? Are blue prints available?

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Qualifying an Opportunity The following information should also be submitted to a cost segregation expert for an accurate estimate ƒ Original Construction Cost Detail ƒ Depreciation Schedule ƒ Appraisals (if convenient) ƒ Rent Roll

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ESTIMATE OF POTENTIAL TAX SAVINGS AND FEE

Client: Sample Client Property: Example - Freestanding Apartment Building, Acquisition

Date of Quote: 11/8/2006

Summary of Benefits

Estimate of Allocations Tax Life

Before Cost Segregation

After Cost Segregation

Additional Tax Deductions Year 1

$79,886

5-year property

$0

0%

$400,000

16%

Increased Cash Flow Year 1

$32,753

7-year property

$0

0%

$0

0%

Additional Tax Deductions Years 1-5

$359,447

15-year property

$0

0%

$225,000

9%

Increased Cash Flow Years 1-5

$147,373

Real property

$2,500,000

100%

$1,875,000

75%

Net Present Value (after tax)

$94,899

Total Basis

$2,500,000

100%

$2,500,000

100%

Benefit to Cost Ratio

27 : 1

2026

2031

$ Increased Cash Flow By Year $ Costs

$60,000

KBKG Fee @ Standard Rates $6,000 KBKG Fee with Volume Discount $6,000 After Tax Cost $3,540

$50,000 $40,000 Cash

$30,000 $20,000 $10,000

Project Information

$0

Building Cost Basis (excluding land)

$2,500,000

Year Placed in Service

2006

($10,000)

Current Tax Year

2006

($20,000)

Combined Tax Rate

41%

Discount Rate

8%

2006

2011

2016

2021 Year

32

Summary of Benefits Client:

Sample Client

Property: Date of Quote:

Example - Freestanding Apartment Building, Acquisition 11/2/2006 Before Cost Segregation Study

Tax Life

5 Year

% Reclass Basis

7 Year

15 Year

0%

0%

0%

0

0

0

5 Year

7 Year

15 Year

5 Year

7 Year

a

b

15 Year c

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28

0 0 0 0 0 0

0 0 0 0 0 0 0 0

0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

Total

0

0

0

100%

2,500,000

$2,500,000

27.5 Year

5 Year

Total Deductions Before Study

7 Year

16%

0%

400,000 5 Year

27.5 Year

Deductions by Year Before Cost Segregation Year

Total

100%

0 7 Year

15 Year 9% 225,000 15 Year

27.5 Year 75% 1,875,000

e=a+b+c+d 45,455 90,909 90,909 90,909 90,909 90,909 90,909 90,909 90,909 90,909 90,909 90,909 90,909 90,909 90,909 90,909 90,909 90,909 90,909 90,909 90,909 90,909 90,909 90,909 90,909 90,909 90,909 90,909

f 80,000 128,000 76,800 46,080 46,080 23,040

2,500,000

2,500,000

400,000

7 Year

15 Year

g 0 0 0 0 0 0 0 0

0

27.5 Year

$32,753 $359,447

Increased Cash Flow Years 1-5

$147,373

Net Present Value (after tax)

$94,899

Benefit to Cost Ratio

27 : 1

Total 100%

Estimate of Fees

$2,500,000

27.5 Year

Deductions by Year After Cost Segregation 5 Year

d 45,455 90,909 90,909 90,909 90,909 90,909 90,909 90,909 90,909 90,909 90,909 90,909 90,909 90,909 90,909 90,909 90,909 90,909 90,909 90,909 90,909 90,909 90,909 90,909 90,909 90,909 90,909 90,909

$79,886

Increased Cash Flow Year 1 Additional Tax Deductions Years 1-5 After Cost Segregation Study

27.5 Year

Additional Tax Deductions Year 1

Total Deductions After Study

h 11,250 21,375 19,238 17,314 15,584 14,024 13,286 13,286 13,286 13,286 13,286 13,286 13,286 13,286 13,286 6,640

i 34,091 68,182 68,182 68,182 68,182 68,182 68,182 68,182 68,182 68,182 68,182 68,182 68,182 68,182 68,182 68,182 68,182 68,182 68,182 68,182 68,182 68,182 68,182 68,182 68,182 68,182 68,182 68,182

j=f+g+h+i 125,341 217,557 164,219 131,576 129,845 105,246 81,468 81,468 81,468 81,468 81,468 81,468 81,468 81,468 81,468 74,822 68,182 68,182 68,182 68,182 68,182 68,182 68,182 68,182 68,182 68,182 68,182 68,182

225,000

1,875,000

2,500,000

KBKG Estimated Fee @ Standard Rates KBKG Fee with Volume Discount 0% KBKG Estimated Fee After Tax

$6,000

Building Total (excludes Land $)

$2,500,000

Increase in Depreciation Expense k=j-e 79,886 126,648 73,310 40,666 38,936 14,337 (9,441) (9,441) (9,441) (9,441) (9,441) (9,441) (9,441) (9,441) (9,441) (16,088) (22,727) (22,727) (22,727) (22,727) (22,727) (22,727) (22,727) (22,727) (22,727) (22,727) (22,727) (22,727) 0

After-Tax Increase in Cash Flow l=k*tax rate 32,753 51,926 30,057 16,673 15,964 5,878 (3,871) (3,871) (3,871) (3,871) (3,871) (3,871) (3,871) (3,871) (3,871) (6,596) (9,318) (9,318) (9,318) (9,318) (9,318) (9,318) (9,318) (9,318) (9,318) (9,318) (9,318) (9,318) (0)

$6,000 $3,540

Tax Rate* Present Value Factor

41%

Current Tax Year

2006

8%

Present Value of Cash Flow

Year

m=l*PV factor 32,753 48,079 25,769 13,236 11,734 4,001 (2,439) (2,259) (2,091) (1,936) (1,793) (1,660) (1,537) (1,423) (1,318) (2,079) (2,720) (2,518) (2,332) (2,159) (1,999) (1,851) (1,714) (1,587) (1,469) (1,361) (1,260) (1,167)

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033

94,899

Interactive Savings Calculator Perform your own thumbnail calculation without having to contact a specialist with the following information: ƒ Purchase price / cost basis ƒ Year place in service ƒ Property type / usage ƒ Parking type ƒ Size of property Access from the homepage of www.costsegregation.biz/ KBKG, INC. COST SEGREGATION SPECIALISTS

www.costsegregation.biz

33

A Competitive Advantage Offering Cost Segregation or recommending Cost Segregation gives practitioners a competitive advantage. ƒ Value added service, helps retain clients ƒ Solicit new business using cost segregation strategy that the competition might not have addressed ƒ Don’t wait for your client to bring the idea to you.

KBKG, INC. COST SEGREGATION SPECIALISTS

www.costsegregation.biz

Where to find opportunities? ƒ Mining your own client base ƒ Real Estate Partnerships & LLCs ƒ Clients w/ K-1’s involving Real Estate ƒ Individuals w/ Schedule E Activity ƒ Property Management Companies ƒ Commercial Development and Brokerages ƒ How might you approach it?

KBKG, INC. COST SEGREGATION SPECIALISTS

www.costsegregation.biz

34

Revenue Opportunities CPAs and tax advisors can create significant savings for their clients and generate additional billings for the additional tax work. •Preparation of Form 3115 •Recalculation of Depreciation •Fixed asset studies •Abandonment Studies •Property Tax Work

KBKG, INC. COST SEGREGATION SPECIALISTS

www.costsegregation.biz

Considerations When Comparing Cost Segregation Services ƒ Does the company have the appropriate tax background? Do they employ CPAs? ƒ Do they employ engineers as preferred by the IRS (not appraisers)? ƒ Do they understand tax related Abandonment issues ƒ Are they knowledgeable on issues involved with a 1031 exchange and how it interacts with Cost Segregation? ƒ Do they have the expertise to file, or help you with, the IRS Form 3115 procedures? ƒ Do they understand how cost segregation can affect estate taxes, passive loss situations, IRS Section 179 deductions, NOL situations, Code Section 168(k), Section 754 Step Ups, and other tax situations? ƒ Does the cost of the study include time for audit support? KBKG, INC. COST SEGREGATION SPECIALISTS

www.costsegregation.biz

35

Contact

Gian Pazzia, Civil Engineer Shareholder (626) 449-4225 x150; [email protected] www.costsegregation.biz

KBKG, INC. COST SEGREGATION SPECIALISTS

www.costsegregation.biz

36

CASE STUDY Sample Restaurant General Contractors Schedule of Values

Date 11/17/2004 11/17/2004 11/17/2004 11/17/2004 11/17/2004 11/17/2004 11/17/2004 11/17/2004 11/17/2004 11/17/2004 11/17/2004 11/17/2004 11/17/2004 11/17/2004 11/17/2004 11/17/2004 11/17/2004 11/17/2004 11/17/2004 11/17/2004 11/17/2004 11/17/2004 11/17/2004 11/17/2004 11/17/2004 11/17/2004 11/17/2004 11/17/2004 11/17/2004 11/17/2004 11/17/2004 11/17/2004 11/17/2004 11/17/2004 11/17/2004 11/17/2004 11/17/2004 11/17/2004 11/17/2004 11/17/2004 11/17/2004 11/17/2004 11/17/2004

Vendor/Source Description GC-PAY APP Carpentry/Rough GC-PAY APP Ceiling System GC-PAY APP Concrete GC-PAY APP Concrete (Patio) GC-PAY APP Concrete (Freezer Floor System) GC-PAY APP Demolition GC-PAY APP Drywall (& Rough Carpentry) GC-PAY APP Electrical GC-PAY APP Electrical (1245 Estimates) GC-PAY APP Special Inspection/Engr. GC-PAY APP Fire Protection GC-PAY APP Flooring, Wood/VCT GC-PAY APP Flooring, Wood/VCT (Vinyl Flooring) GC-PAY APP Wood Floor Protection GC-PAY APP Protect All Kitchen (Safety Floor) GC-PAY APP Hardware / Rough GC-PAY APP HVAC GC-PAY APP HVAC (1245 Estimates) GC-PAY APP Insulation GC-PAY APP Grease Duct Wrap GC-PAY APP FRP (Kitchen Sanitary Wall Panels) GC-PAY APP Millwork GC-PAY APP Millwork (1245 Estimate) GC-PAY APP Millwork (1245 Estimate) GC-PAY APP Painting GC-PAY APP Plumbing GC-PAY APP Plumbing (1245 Estimate) GC-PAY APP Roof Surfaces Shingle GC-PAY APP Gutters & Down Spouts GC-PAY APP Steel / Structural GC-PAY APP Steel / Structural (Exterior Dining Canopy) GC-PAY APP Steel / Misc GC-PAY APP Plant Hangers GC-PAY APP Aluminum Casting (Decorative Columns Dwg A8.1) GC-PAY APP Tile / Ceramic / Quarry GC-PAY APP Toilet Partitions GC-PAY APP Caulking GC-PAY APP Clean Up / General Labor GC-PAY APP Dumpster GC-PAY APP Safety / Security GC-PAY APP Small Tools / Supplies GC-PAY APP Project Supervision GC-PAY APP Telephone / Postage

Total Construction $ Reclass %

73.02% 15.28% 11.70%

53.50% 46.50%

55.51% 44.49%

62.43% 37.57%

30.55% 5.23% 64.22% 59.70% 40.30%

65.17% 34.83%

Recovery Period 39 Year 39 Year 39 Year 15 Year 5 Year Soft Cost 39 Year 39 Year 5 Year Soft Cost 39 Year 39 Year 5 Year 39 Year 5 Year 39 Year 39 Year 5 Year 39 Year 5 Year 5 Year 39 Year 7 Year 5 Year 39 Year 39 Year 5 Year 39 Year 39 Year 39 Year 15 Year 39 Year 5 Year 5 Year 39 Year 39 Year 39 Year Soft Cost Soft Cost Soft Cost Soft Cost Soft Cost Soft Cost

1,543,225.00 Schedule Value 5,000.00 13,010.00 59,989.00

GC Schedule

3,500.00 119,435.00 171,000.00 5,740.00 22,500.00 32,899.00 6,783.00 30,850.00 500.00 149,390.00 5,082.00 2,392.00 6,908.00 252,971.00

48,250.00 118,900.00 15,510.00 8,362.00 88,000.00 18,750.00 3,150.00 12,903.00 27,656.00 8,732.00 1,000.00 6,000.00 3,000.00 500.00 500.00 55,000.00 2,000.00

Allocated Cost 5,000 13,010 43,806 9,166 7,017 3,500 119,435 91,479 79,521 5,740 22,500 18,261 14,638 6,783 30,850 500 93,259 56,131 5,082 2,392 6,908 77,287 13,227 162,456 48,250 70,989 47,911 15,510 8,362 57,350 30,650 18,750 3,150 12,903 27,656 8,732 1,000 6,000 3,000 500 500 55,000 2,000

Property Classifications & Soft Cost Allocation 39 Year 15 Year 7 Year 5 Year Soft Cost 5,000 13,010 43,806 9,166 7,017 3,500 119,435 91,479 79,521 5,740 22,500 18,261 14,638 6,783 30,850 500 93,259 56,131 5,082 2,392 6,908 77,287 13,227 162,456 48,250 70,989 47,911 15,510 8,362 57,350 30,650 18,750 3,150 12,903 27,656 8,732 1,000 6,000 3,000 500 500 55,000 2,000

1

CASE STUDY Sample Restaurant General Contractors Schedule of Values

Date 11/17/2004 11/17/2004 11/17/2004 11/17/2004 11/17/2004 11/17/2004 11/17/2004 11/17/2004 11/17/2004 11/17/2004 11/17/2004 11/17/2004 11/17/2004 11/17/2004 11/17/2004 11/17/2004 11/17/2004 11/17/2004 11/17/2004 11/17/2004 11/17/2004 11/17/2004 11/17/2004 11/17/2004 11/17/2004 11/17/2004 11/17/2004 11/17/2004 11/17/2004 11/17/2004 11/17/2004 11/17/2004

Vendor/Source GC-PAY APP GC-PAY APP GC-PAY APP GC-PAY APP GC-PAY APP GC-PAY APP GC-PAY APP GC-PAY APP GC-PAY APP GC-PAY APP GC-PAY APP GC-PAY APP GC-PAY APP GC-PAY APP GC-PAY APP GC-PAY APP GC-PAY APP GC-PAY APP GC-PAY APP GC-PAY APP GC-PAY APP GC-PAY APP GC-PAY APP GC-PAY APP GC-PAY APP GC-PAY APP GC-PAY APP GC-PAY APP GC-PAY APP GC-PAY APP GC-PAY APP GC-PAY APP

Total Construction $

Description

Temporary Facilities Final Cleanup - Prof Jan Fire Extinguisher (Kitchen) Awning Roto Rooter Termite Protection Radiant Heating System (Patio Heat System) Architectural Insurance Office Supplies General Supervision Travel Expense Change Toilet Partitions to SS Profit Miscellaneous Plumbing Changes Profit Revisions to Glass and office cabinetry Profit Floor Changes Profit Increase cost for painting changes Profit Credit for overcharge in profit Add backing at bar area Profit Sealer for concrete floor Profit Added concrete landlord was to install Profit Upsize units, change sheave & rebalance Profit Overhead and Profit @ 10% Total AIA Costs Per Documentation: AIA Soft Cost Allocation: TOTAL AIA RECLASSIFICATION:

Reclass %

1,543,225.00

Recovery Period

Schedule Value

Soft Cost Soft Cost 5 Year 5 Year Soft Cost Soft Cost 5 Year Soft Cost Soft Cost Soft Cost Soft Cost Soft Cost 39 Year 39 Year 39 Year 39 Year 5 Year 5 Year 39 Year 39 Year 39 Year 39 Year Soft Cost 5 Year 5 Year 39 Year 39 Year 39 Year 39 Year 39 Year 39 Year Soft Cost

2,000.00 5,000.00 1,500.00 11,867.00 500.00 1,200.00 26,400.00 8,500.00 13,522.00 500.00 13,600.00 3,000.00 4,316.00 431.60 1,991.38 199.14 3,218.00 321.80 (17,309.00) (865.45) 8,845.00 884.50 (918.52) 360.00 18.00 2,528.00 126.40 1,800.00 90.00 15,335.38 766.77 127,335.00 1,543,225.00

Allocated Cost 2,000 5,000 1,500 11,867 500 1,200 26,400 8,500 13,522 500 13,600 3,000 4,316 432 1,991 199 3,218 322 (17,309) (865) 8,845 885 (919) 360 18 2,528 126 1,800 90 15,335 767 127,335 1,543,225

Property Classifications & Soft Cost Allocation 39 Year 15 Year 7 Year 5 Year Soft Cost 4,316 432 1,991 199 (17,309) (865) 8,845 885 2,528 126 1,800 90 15,335 767 772,141 149,608 921,750 59.73%

GC Schedule

39,816 7,715 47,531 3.08%

13,227 2,563 15,790 1.02%

1,500 11,867 26,400 3,218 322 360 18 467,561 90,593 558,155

2,000 5,000 500 1,200 8,500 13,522 500 13,600 3,000 (919) 127,335 250,478 (250,478) -

36.17%

2

CASE STUDY Sample Restaurant ENGINEERING ESTIMATES Location Factor: Time Factor Type Concrete

1.08 1.00 Description Freezer Floating Concrete Slab Freezer Floor Insulation 4" Exterior Dining Area - Concrete Pad Total Estimated Costs

Electrical General Building Electrical Service and Distribution - General Use (34.46%) Service and Distribution - Equipment (65.54%) Lounge Plasma Screens - Hookups Ceiling Fan Ceiling Fan Pwr Office - Voice Data Jacks Office Equipment Dedicated Outlets POS Equipment Dedicated Outlets Kitchen Equipment Dedicated Hookups Kitchen Equipment Pwr Kitchen HVAC Dedicated Hookups Kitchen HVAC Pwr Track for Spot light Fixtures Accent Spot Light Fixtures Accent Spot Light Fixtures Feed Kit Accent Spot Light Fixtures Pwr Decretive Exterior Building Mount Light Decretive Exterior Building Mount Light Pwr Total Estimated Costs

Flooring, Wood/VCT Vinyl Floor Covering Total Estimated Costs

Dwg No. Client K-9 K-9 TS

Client E2 E2 E2 K3.1 E2 E2 E2 E2 E2 E2 E2 E2 E2 E2 E2 E2 E2 E2 E2

Client ID3.1

Qty 1 776 776 1,699

1 9,274 9,274 9,274 4 16 212 5 5 5 78 78 7 958 32 19 8 250 11 132

1 4,522

Unit LS sf sf sf

LS sf sf sf ea ea lf ea ea ea ea ea ea ea lf ea ea lf ea lf

LS sf

Unit Cost 59,989.00 4.90 3.48 5.00

171,000.00 18.49 2.04 3.88 150.00 225.00 4.65 195.00 213.00 230.00 225.00 4.65 225.00 4.65 22.50 210.00 62.50 4.65 405.00 4.65

32,899.00 3.00

Estimates

Cost 43,806.29 4,103 2,914 9,166 59,989

78,567 20,414 38,825 647 3,884 1,064 1,052 1,149 1,241 18,936 391 1,699 4,807 777 4,305 540 1,254 4,807 662 185,023

Cost Source Actual Cost 13037003800 13037004100 KBKG

Actual Cost M&S 43/5 RD5010110 RD5010110 168506000600 KBKG KBKG M&S M&S M&S M&S M&S M&S M&S 165508200200 165508200200 165508200200 KBKG 165203001190 KBKG

18,261.29 Actual Cost 14,638 96581007800 32,899

Period Allocated Cost 39 Year 43,806 5 Year 4,103 5 Year 2,914 15 Year 9,166 59,989

39 Year 39 Year 5 Year 5 Year 5 Year 5 Year 5 Year 5 Year 5 Year 5 Year 5 Year 5 Year 5 Year 5 Year 5 Year 5 Year 5 Year 5 Year 5 Year

39 Year 5 Year

72,612 18,867 35,883 598 3,590 983 972 1,062 1,147 17,501 362 1,571 4,442 718 3,979 499 1,159 4,443 612 171,000

18,261 14,638 32,899

39 Year 43,806 0 0 0 43,806

15 Year

7 Year

5 Year

0 0 9,166 9,166

0 0 0 0

4,103 2,914 0 7,017

73.02%

15.28%

0.00%

11.70%

72,612 18,867 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 91,479

0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

0 0 35,883 598 3,590 983 972 1,062 1,147 17,501 362 1,571 4,442 718 3,979 499 1,159 4,443 612 79,521

53.50%

0.00%

0.00%

46.50%

18,261 0 18,261

0 0

0 0

14,638 14,638

55.51%

0.00%

0.00%

44.49%

3

CASE STUDY Sample Restaurant ENGINEERING ESTIMATES Location Factor: Time Factor Type

1.08 1.00 Description

HVAC General Building HVAC Kitchen - Make-Up Air Unit 6000 CFM MAU Air Duct 16" D MAU Air Duct 22" D MAU Hood 20" x 12" Kitchen - Exhaust Fan 2400 CFM Kitchen - Exhaust Fan 7400 CFM Kitchen - Exhaust Fan 1500 CFM Kitchen - Exhaust Fan 1400 CFM Direct Drive Kitchen - Exhaust Fan 500 CFM Direct Drive Kitchen - Exhaust Fan 400 CFM Direct Drive Kitchen - Exhaust Hood Duct Total Estimated Costs Millwork Rough Carpentry - Also included in "drywall contract" Bar Counter / Woodwork Crown Molding Wall Panels - Wainscoting & Chair Rail Décor Ceiling Panels / Wood Work Base Cabinets - Office Upper Cabinets - Office Cabinets - Dining Area Total Estimated Costs

Plumbing (1245 Estimate) General Building Plumbing Beer Cooler - Rough In Ice Machine - Rough In Ice Bin - Rough In Trough Drain - Rough In Soda System - Rough In Hand Sink - Rough In Cooler Coil - Rough In Freezer Coil - Rough In Freezer Coil - Rough In Cooler Coil - Rough In Range/Oven - Rough In Trough Faucet - Rough In Dishwasher - Rough In Disposer - Rough In Rack Over - Rough In Fill Faucet - Rough In Hood Drain - Rough In

Dwg No.

Qty

Unit

Unit Cost

Client M1 M1 M2 M2 M2 M1 M1 M1 M1 M1 M1 M2

1 9,274 2 167 129 8 1 2 1 1 1 1 17

LS sf ea lf lf ea ea ea ea ea ea ea lf

149,390.00 15.00 9,150.00 28.00 36.00 85.00 3,325.00 7,775.00 3,675.00 560.00 400.00 365.00 5.50

Client TS A2.0 A2.0 A2.0 A2.0 A2.0 A2.0 A2.0

1 9,274 27 481 2,405 4,522 23 23 36

LS sf lf lf sf sf lf lf lf

252,971.00 12.00 500.00 12.00 9.50 4.50 143.00 110.00 250.00

Client P2 P1 P1 P1 P1 P1 P1 P1 P1 P1 P1 P1 P1 P1 P1 P1 P1 P1

1 9,274 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1

LS sf ea ea ea ea ea ea ea ea ea ea ea ea ea ea ea ea ea

118,900.00 16.00 150.00 350.00 150.00 200.00 500.00 300.00 200.00 200.00 200.00 200.00 300.00 150.00 510.00 550.00 500.00 200.00 200.00 Estimates

Cost 93,702 19,746 5,045 5,011 734 3,588 16,778 3,965 604 432 394 101 150,100

36,687 14,567 6,228 24,652 21,957 3,549 2,730 9,711 120,080

95,591 162 378 162 216 540 324 216 216 216 216 324 162 550 593 540 216 216

Cost Source Actual Cost M&S 43/5 157205000160 158101005920 158101005950 158203006070 158301005540 158301005580 158301004660 158301006160 KBKG 158301006100 158101000560

Actual Cost M&S 43/5 KBKG 62204502600 62505004300 62505004000 64101000400 123107502500 64101009560

Actual Cost M&S 43/4 KBKG KBKG KBKG KBKG KBKG KBKG KBKG KBKG KBKG KBKG KBKG KBKG 154186001490 KBKG KBKG KBKG KBKG

Period

Allocated Cost

39 Year 5 Year 5 Year 5 Year 5 Year 5 Year 5 Year 5 Year 5 Year 5 Year 5 Year 5 Year

93,259 19,652 5,022 4,987 730 3,571 16,699 3,947 601 430 392 100 149,390

39 Year 5 Year 5 Year 5 Year 5 Year 7 Year 7 Year 5 Year

39 Year 5 Year 5 Year 5 Year 5 Year 5 Year 5 Year 5 Year 5 Year 5 Year 5 Year 5 Year 5 Year 5 Year 5 Year 5 Year 5 Year 5 Year

77,287 30,687 13,120 51,935 46,256 7,476 5,751 20,458 252,971

70,989 120 280 120 160 401 240 160 160 160 160 240 120 409 441 401 160 160

39 Year

15 Year

7 Year

5 Year

93,259 0 0 0 0 0 0 0 0 0 0 0 93,259

0 0 0 0 0 0 0 0 0 0 0 0 0

0 0 0 0 0 0 0 0 0 0 0 0 0

0 19,652 5,022 4,987 730 3,571 16,699 3,947 601 430 392 100 56,131

62.43%

0.00%

0.00%

37.57%

77,287 0 0 0 0 0 0 0 77,287

0 0 0 0 0 0 0 0 0

0 0 0 0 0 7,476 5,751 0 13,227

0 30,687 13,120 51,935 46,256 0 0 20,458 162,456

30.55%

0.00%

5.23%

64.22%

70,989 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

0 120 280 120 160 401 240 160 160 160 160 240 120 409 441 401 160 160

4

CASE STUDY Sample Restaurant ENGINEERING ESTIMATES Location Factor: Time Factor Type

1.08 1.00 Description Auto Gas Shut-off - Rough In Range Oven - Rough In Tilting Skillet - Rough In Fill Faucet - Rough In Conventional Oven - Rough In Booster Heater - Rough In Holding Cabinet - Rough In 8 Burner/Oven - Rough In Griddle - Rough In Cheese Melter - Rough In Fryer Assembly - Rough In Dipper Well - Rough In Hot Food Unit - Rough In Dipper Well - Rough In Hot Food Unit - Rough In Soda Tower - Rough In Beverage Sink - Rough In Coffee Brewer - Rough In Ice Tea Brewer - Rough In Soup Wells - Rough In BBQ Oven - Rough In Beer Tower - Rough In Soda Gun - Rough In Refrigerator - Rough In Refrigerator - Rough In Cooler Coil - Rough In Meat Sink - Rough In Vegetable Sink - Rough In Bakery Sink - Rough In 3-Comp Pot Sink - Rough In Soiled Dishtable - Rough In Bain Maries - Rough In Refrigerator Base - Rough In Freezer Base - Rough In Chef's Sink - Rough In Refrigerator Base - Rough In Refrigerator Rail - Rough In Jockey Station - Rough In Underbar Sink - Rough In Underbar Sink - Rough In Underbar Station - Rough In Jockey Station - Rough In Kitchen - Vent Pipe Kitchen - Gas Pipe 4" Kitchen - Gas Pipe 3" Kitchen - Gas Pipe 1 1/2" Kitchen - Gas Pipe 1 1/4"

Dwg No. P1 P1 P1 P1 P1 P1 P1 P1 P1 P1 P1 P1 P1 P1 P1 P1 P1 P1 P1 P1 P1 P1 P1 P1 P1 P1 P1 P1 P1 P1 P1 P1 P1 P1 P1 P1 P1 P1 P1 P1 P1 P1 P2 P2 P2 P2 P2

Qty 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 180 54 18 8 36

Unit ea ea ea ea ea ea ea ea ea ea ea ea ea ea ea ea ea ea ea ea ea ea ea ea ea ea ea ea ea ea ea ea ea ea ea ea ea ea ea ea ea ea lf lf lf lf lf

Unit Cost 150.00 300.00 200.00 200.00 150.00 350.00 200.00 600.00 250.00 300.00 500.00 150.00 150.00 150.00 150.00 150.00 350.00 350.00 350.00 150.00 80.00 150.00 300.00 500.00 500.00 150.00 350.00 350.00 350.00 485.00 300.00 450.00 150.00 150.00 350.00 500.00 500.00 300.00 200.00 200.00 200.00 300.00 21.50 38.00 28.50 13.80 12.35 Estimates

Cost 162 324 216 216 162 378 216 647 270 324 540 162 162 162 162 162 378 378 378 162 86 162 324 540 540 162 378 378 378 523 324 486 162 162 378 540 540 324 216 216 216 324 4,176 2,214 554 119 480

Cost Source KBKG KBKG KBKG KBKG KBKG KBKG KBKG KBKG KBKG KBKG KBKG KBKG KBKG KBKG KBKG KBKG KBKG KBKG KBKG KBKG KBKG KBKG KBKG KBKG KBKG KBKG KBKG KBKG KBKG KBKG KBKG KBKG KBKG KBKG KBKG KBKG KBKG KBKG KBKG KBKG KBKG KBKG 151073202140 151076200650 151076200630 151076200600 151076200590

Period

Allocated Cost

5 Year 5 Year 5 Year 5 Year 5 Year 5 Year 5 Year 5 Year 5 Year 5 Year 5 Year 5 Year 5 Year 5 Year 5 Year 5 Year 5 Year 5 Year 5 Year 5 Year 5 Year 5 Year 5 Year 5 Year 5 Year 5 Year 5 Year 5 Year 5 Year 5 Year 5 Year 5 Year 5 Year 5 Year 5 Year 5 Year 5 Year 5 Year 5 Year 5 Year 5 Year 5 Year 5 Year 5 Year 5 Year 5 Year 5 Year

120 240 160 160 120 280 160 481 200 240 401 120 120 120 120 120 280 280 280 120 64 120 240 401 401 120 280 280 280 389 240 361 120 120 280 401 401 240 160 160 160 240 3,101 1,644 411 88 356

39 Year

15 Year 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

7 Year 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

5 Year 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

120 240 160 160 120 280 160 481 200 240 401 120 120 120 120 120 280 280 280 120 64 120 240 401 401 120 280 280 280 389 240 361 120 120 280 401 401 240 160 160 160 240 3,101 1,644 411 88 356

5

CASE STUDY Sample Restaurant ENGINEERING ESTIMATES Location Factor: Time Factor Type

1.08 1.00 Description Kitchen - Gas Pipe 1" Kitchen - Gas Piping Valves & Connections Kitchen - Gas Pressure Regulator 1" Kitchen - Gas Pressure Regulator 1 1/4" Kitchen - Gas Rough In Kitchen - Waste Piping 3" Kitchen - Waste Piping 2" Kitchen - Waste Piping Valves & Connections Kitchen - Clean Out Tee Kitchen - Floor Drain Kitchen - Floor Clean Out Kitchen - Floor Sink Kitchen - Water Pipe 2" Kitchen - Water Pipe 1 1/2" Kitchen - Water Pipe 1 1/4" Kitchen - Water Pipe 1" Kitchen - Water Pipe 3/4" Kitchen - Water Pipe 1/2" Kitchen - Water Piping Valves & Connections Kitchen - Water Piping Insulation Total Estimated Costs

Steel / Structural General Building Structural Steel Canopy Total Estimated Costs

Dwg No. P2 P2 P2 P2 P2 P2 P2 P2 P2 P2 P2 P2 P2 P2 P2 P2 P2 P2 P2 P2

Client TS TS

Qty 68 0.25 1 1 15 50 354 0.25 15 18 14 18 30 22 70 188 104 143 0.25 0.10

1 9,274 1,699

Unit lf ls ea ea ea lf lf ls ea ea ea ea lf lf lf lf lf lf ls ls

LS sf sf

Unit Cost 11.20 4,188.25 112.00 315.00 265.00 19.65 16.60 7,400.75 232.00 157.00 131.00 325.00 16.00 12.45 10.90 9.05 7.80 6.95 5,420.19 6,882.29

88,000.00 6.77 19.75

Estimates

Cost 822 1,130 121 340 4,289 1,060 6,341 1,996 3,755 3,049 1,979 6,312 518 296 823 1,836 875 1,072 1,462 743 160,106

Cost Source 151076200580 RSM 151206700136 151206700137 M&S 53/9 151085204470 151085204460 RSM 151502500200 151503002040 151502000100 KBKG 151074202260 151074202240 151074202220 151074202200 151074202180 151074202140 KBKG 150806000100

Actual Cost 67,745 M&S 43/2 36,206 M&S 43/9 103,951

Period

Allocated Cost

5 Year 5 Year 5 Year 5 Year 5 Year 5 Year 5 Year 5 Year 5 Year 5 Year 5 Year 5 Year 5 Year 5 Year 5 Year 5 Year 5 Year 5 Year 5 Year 5 Year

610 839 90 252 3,185 787 4,709 1,483 2,789 2,264 1,470 4,688 385 219 611 1,363 650 796 1,086 551 118,900

39 Year 15 Year

57,350 30,650 88,000

39 Year

15 Year

7 Year

5 Year

0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 70,989

0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

610 839 90 252 3,185 787 4,709 1,483 2,789 2,264 1,470 4,688 385 219 611 1,363 650 796 1,086 551 47,911

59.70%

0.00%

0.00%

40.30%

57,350 0 57,350

0 30,650 30,650

0 0 0

0 0 0

65.17%

34.83%

0.00%

0.00%

6

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