Peco Foods, Inc. had a Cost Segregation Study done, and during an IRS audit, it was found that a Purchase Price Allocation was included in the Buy-Sell agreement. This particular Purchase Price Allocation was in great detail. A Cost Segregation Study cannot restate asset classifications which conflict with the Purchase Price Allocation.
Typically, the Purchase Price Allocation becomes a legal document tailor made to effect certain tax consequences for the seller. The IRS will not allow the purchaser to make different allocations which will benefit their position.
If you are considering a real estate purchase, review the documents carefully. Don’t agree to special provisions which may benefit the seller but can limit your tax options.
Call ELLS CPAs & Business Advisors at 714.569.1000, we can help you structure your real estate transactions so that your tax consequences are not limited. In addition, if a Cost Segregation Study can be beneficial to new or existing real estate holdings, we can evaluate the benefits you may receive.