Mark to Market Mark to Market Appraisal Services Federal Appraisal, LLC provides “Mark to Market” Appraisal Services as required by the Government Accounting Standards Board (“GASB”) new rule, Statement 52. The rule requires state and local government endowment funds that hold land and other real estate as investments to report the asset or liability at fair value. When real estate is marked to market, for accounting purposes it is assigned the value that it would fetch in the open market. Currently, governments report such assets and liabilities at historical cost. The rule, Statement 52, was issued on November 21, 2007 and is effective for financial-statement periods beginning after June 15, 2008. The mandate mostly affects public colleges and universities, as well as other entities that carry land and other real property as part of their endowment investments. By reporting the endowed real estate at historical cost, governments provide investment results only in the year the holdings are sold. By using the fair-value or mark to market method, governments provide “more decision-useful information about their composition, current value, and recent changes in value,” noted the GASB in a press statement. The rule mandates that governments report changes in fair value as investment income and requires them to disclose the methods and significant assumptions used to determine that market value. Also, governments must provide investors with information about other investments booked at fair value. The “Mark to Market” Appraisal Services that Federal Appraisal, LLC provides comply with all GASB appraisal and accounting reporting requirements, as well as with the Uniform Standards of Professional Appraisal Practice (USPAP), the Appraisal Institute and the American Society of Appraisers.

Purchase Price Allocation Purchase Price Allocation Federal Appraisal, LLC provides full reports and management support when allocating a purchase price among the various assets included in a multi-asset or portfolio acquisition or disposition. A purchase price allocation is based on the value of the various assets. As appraisal experts serving a large geographic area where a portfolio of assets is more likely to occur, and as appraisal experts on special and complex assets where various classes of assets are more likely to have significant value, Federal Appraisal, LLC is uniquely qualified to serve. Special considerations in our purchase price allocation include: financial, tangible, intangible assets individual economic entities individual properties property, plant and equipment goodwill and customer relationships in-process research and development current or existing technologies and products patents, trademarks and trade names developed software and databases assembled workforce (workforce in place) SEC and IRS requirements See Business Valuation/Asset Type for more.

Cost Segregation Cost Segregation Studies, or Accelerated Cost Recovery, assists real estate owners and corporate executives in reducing federal income tax liability and thereby realize a significant increase in cash flow. This is accomplished by reclassifying certain building and land improvement asset costs into shorter 5, 7, and 15-year recovery periods in order to maximize depreciation expenses. Federal Tax Depreciation Current tax law holds that any addition or improvements to non-residential Real Property already in service is depreciated using the straight-line method over a 39-year recovery period. Residential Real Property is depreciated using the straight-line method over a 27.5-year recovery period. If improvements to property can be classified as tangible personal property, MACRS (Modified Acceleration Cost Recovery Systems) depreciation is calculated using shorter recovery periods and applicable accelerated methods. Current MACRS and property classifications for federal income tax purposes are outlined in the 1986 Tax Reform Act (TRA 86) Cost Recovery Systems and the Omnibus Budget Reconciliation Act of 1993, along with the Internal Revenue Service Code. These guidelines identify items considered to be Section 1245 (5–7-year life) and Section 1250 (ADR midpoint life of 27.5 years or more) property. Cost Segregation Studies and Federal Tax Benefits Cost segregation is a complex process, and our senior cost engineering and real estate valuation specialists can work with you to bridge the gap between construction and accounting to ensure your tax benefits are maximized. Our studies are provided by experienced professionals who will: Work with you and your accountant to procure data related to acquisition or construction. Analyze owner project costs, contractor payment applications, and other cost documentation for reconciliation to property accounting records. Perform cost engineering analysis utilizing project construction plans, construction cost manuals such as RS Means and Marshall & Swift, and conduct a physical inspection of the property to document findings. Determine the appropriate tax life for building and land improvements by researching and identifying relevant case law and tax code. Issue a written report that contains project property data, related tax information, and excel spreadsheet asset value schedules that support our findings. The potential federal tax benefit or payback for identifying and reclassifying each dollar of 39-year Real Property is: 5-year Personal Property – about 22 cents for each dollar reclassified; 7-year Personal Property – about 18 cents for each dollar reclassified; 15-year Real Property – about 10 cents for each dollar reclassified. Our project experience suggests that when the tax savings from a cost segregation study are used to reduce the cost of construction, taxpayers may effectively reduce the overall cost of construction by 2% to 6%. In addition to reducing federal income tax liability, another benefit derived from a cost segregation study may include lower sales tax exposure. For example, some states grant tax exemptions for tangible personal property used in the manufacturing process or research and development. These types of assets are typically identified and valued as part of a study for state and local tax purposes. Prospective Clients Federal Appraisal, LLC provides cost segregation studies for traditional investment and corporate real estate such as office and retail shopping centers, hotels, apartment and restaurant properties as well as special purpose properties such as industrial facilities, assisted living centers, resorts, casinos, golf courses, and power generation facilities. You can benefit from the increased cash-flow derived from the tax benefits of accelerated asset depreciation, and a cost segregation study is highly recommended for real estate owners who: Constructed and placed in service new real estate assets; Purchased new real estate assets or made additions or improvements; Expect to hold these assets for more than three years; Have historic real estate asset costs that have not been segregated for depreciation purposes. The best time to apply a cost segregation study is when assets are acquired or placed in service. Studies can be used for new and existing properties, and can be applied to both older and newly acquired holdings. Studies also provide benefits for such purposes as purchase price allocation, sales tax savings, lower property taxes, improved fixed asset records, and asset retirement. Cost Segregation allows taxpayers to substantially increase their after-tax cash flow and defer federal and state income taxes by accelerating depreciation expenses. Non-segregated residential real estate is depreciated over 27.5 years and a non-segregated commercial real estate is depreciated over 39 years. A cost segregation study will identify and reclassify the elements of the real estate. Some real estate elements have depreciation schedules of 5, 7, and 15 years, which are dramatically shorter than 27.5 and 39 years. Cost Segregation is one of the most significant tax reducing opportunities available in the real estate industry. Federal Appraisal, LLC provides cost effective, USPAP-compliant cost segregation studies that are certified by MAI’s, ASA’s and that are conducted by professionals with engineering backgrounds. We recommend examining a company’s cost segregation program, whenever the company: acquires real estate builds a new asset installs leasehold improvements installs additions or expansions, or renovates an existing asset discovers historical costs have not yet been segregated The Cost Benefit Test for Cost Segregation 1. Can your organization benefit from sheltering income? 2. Did your organization buy or build any facilities at a cost of more than $2,000,000, since 1986? 3. Does your organization expect to hold the facilities for more than three years? If you answered “yes” to these questions, then your organization will benefit from a professionally prepared cost segregation study. Cost Segregation studies may provide other benefits, such as purchase price allocation, sales tax savings, lower property taxes, and improved fixed asset records and registers. Cost segregation can be used for new and existing properties, and can be applied to both older or newly acquired holdings. The best time to apply cost segregation is when assets are acquired or placed in service. Cost segregation is complex because of the numerous depreciation classifications and the engineering and real estate expertise required to determine the appropriate classification. In addition to providing Cost Segregation services for traditional investment and corporate real estate, Federal provides Cost Segregation services for special purpose properties, such as power generation facilities and manufacturing facilities. See Business Valuation/Asset Type page for more information.

Estates & Gifts Federal Appraisal, LLC provides appraisal services for gifting closely held stocks or interests in partnerships and real estate holdings and for IRS estate issues. Real Estate Appraisals for Estate & Gift Tax Purposes All appraisals are written for specific purposes. An appraisal written for one purpose may not be appropriate for use in another purpose. Appraisals ought to be written specifically for estate and gift tax purposes. Federal Appraisal specializes in appraisals for various IRS reporting purposes, such as Estate and Gift Tax purposes. Business Appraisals for Estate & Gift Tax Purposes Similar to the circumstances discussed above, business appraisals (appraisals of businesses and business intangibles) written for estate and gift tax purposes are distinct from appraisals for other purposes. Federal Appraisal specializes in such appraisals. See Business Valuation/Asset Type for more. Discount Studies Estate & Gift tax appraisal issues have become complex over the years. Essentially, property and business management require two distinct appraisals. The first is an appraisal of the underlying real property, business, or asset, with an undivided/fee simple interest. The second is an appraisal of the discount to be applied to the undivided/fee simple interest in order to find the value of a partial interest. These appraisals are commonly called “discount studies.” An essential part of the estate and gift tax analysis is the determination of the appropriate discount for partial interests.   The lack of control, the lack of influence on management, and the lack of marketability/illiquidity associated with a partial interest can often dramatically reduce the value of an asset, and hence the taxable basis.  When discounting for less than a controlling interest, several factors should be considered, including but not limited to: Lack of Control and Management size of interest and dispersion of voting interests limits to distributions restrictions on transfer of interest key person, general or limited partnership interest Lack of Marketability and Illiquidity restrictions on sale rights to partition blockage factors investor appetite for type of investment cost of delay and reduced cash flow indefinite or finite investment/partnership Form 8283Federal Appraisal, LLC has experience with and can certify (sign) Form 8283, Non-cash Charitable Contributions as well. Leveraged Reverse Freezes The process of undergoing a Leveraged Reverse Freeze can be highly complex. In a leveraged reverse freeze, a preferred partnership interest is exchanged for either a note, transfer of preferred partnership interest to a designated grantor retained annuity trust (GRAT), or other types of real estate planning means. The end goal of a leveraged reverse freeze is for the receiving family member or GRAT to receive a portion of the cash flow and appreciation after all interest payments/GRAT annuity payments have been accounted for. We at Federal Appraisal offer services to help those who interested, or may be interested, in partaking in a Leveraged Reverse Freeze.