There is no right or wrong way to do cost segregation studies. We’ve seen many people run their cost segregation business in Excel. However, there are some fundamental differences when using Excel vs. a program like SegStream Pro.
The main difference is the time it takes to complete a study, but there are several contributing factors. In this article, we’ll dive into the differences between using Excel vs. SegStream pro for cost seg studies, and why it’s faster and easier in SegStream.
Excel requires writing down a lot more quantities
When using Excel to do a cost seg study, you’ll need to write down specific quantities for each component of the property. This includes specific numbers for plumbing, electrical systems, panels, tiles, etc.
When you use SegStream, it will only ask for a few quantities, such as the surface area of a building. Then, we’ll simply ask you for percentages and the software will calculate specific quantities in the background based on greater metrics like the size of the property.
For components like room types and finish types, we’ll ask for percentages rather than specific quantities. Then we’ll crunch the numbers in the background based off of pre-determined calculations set in the software.
This saves you tons of time because you don’t have to measure everything to the exact inch, but instead provide a reasonable estimate of the percentage.
Excel requires you to do more calculations
After carefully counting and writing down all of your quantities into your Excel spreadsheet, you’ll then have to do a whole slew of calculations.
For example, let’s say you own a building with 64 1-bed, 1-bath, 750-square-foot units. If you have an electrical panel in each 1 bed and bath unit, you’ll need to count everything that is qualified for accelerated deprecation within each panel. That means you’ll need to determine which components count as personal property (5-year depreciation) and which are not qualified and only count for standard depreciation for all 64 units.
The same would hold true for the floor finishes of each unit. Let’s say you have 85 square feet of tile and the rest is all sheet carpet. You would need to then add up all the square footage of tile and sheet carpet within all the units, then calculate how much of those components qualify for accelerated depreciation and for what accelerated time period.
These are pretty simple examples, in reality, it would be much more complicated since your units would probably not all be exactly the same.
If you were using SegStream, you could simply ‘multiply’ each identical unit, and you would only need to put in percentages rather than do the calculations yourself. For the floor finishes, all you would need to do is put in the square footage for one unit, then say what percentage is tile and what percentage is carpet. The calculations, including accelerated depreciation periods, is then automatically done for you.
It’s easier to make mistakes in Excel
Going back to the apartment building example, if you were using Excel you would have to be careful to make sure that all of the square footage in the units matches the total square footage for the building. If you were to end up putting more square footage of floor finishes than the actual square footage of the apartment, then multiply that mistake by 64 for each unit, the IRS might take issue.
You could easily end up with thousands more square feet of floor finish than you should have, which would be a major mistake. These kinds of mistakes are easy to make when doing this manually.
With SegStream, you put in percentages, so it’s impossible to make that mistake as you can never go beyond your building’s total square footage or footprint.
Excel requires you to think much harder
All of the questions you need to be answered to complete a cost segregation study are inside of SegStream and prompted to you as you go through the study process. Excel, on the other hand, requires you to start from scratch, or at least copy/paste your last similar project. You may have Excel templates for different property types as well, which can help.
The issue with this is that no two properties are the same, and using a template based on one property might not collect all of the information you need for another. You end up needing to think very hard and carefully to make sure you’ve turned over every last detail and asked every question.
SegStream takes care of that thinking for you. Instead of worrying about the details, you go through the questionnaire process and can be ensured that the program will prompt you for every detail you need.
While there are many ways to successfully do cost segregation studies, we believe the process we’ve created with SegStream to be much faster and easier. The goal is to enable you to do more studies in less time, allowing you to take on more clients and drive greater profits for your firm.
Interested in seeing how SegStream works?
Schedule a free demo and we’ll show you how.