| Tax Reduction - a Result of Cost Segregation | | | | - Bridgeport, CT |
| Tax tips and tax help to assist taxpayers by | | | | - Washington, DC |
| describing optionsfor tax reduction and tax cuts | | | | - San Francisco, CA |
| through lawful tax deductions. Tax reduction and tax | | | | - Atlanta, GA |
| deferral are the primary benefits of obtaining a cost | | | | - Dallas/Ft. Worth, TX |
| segregation study. Income taxes are a substantial | | | | - New Orleans, LA |
| burden for most real estate investors. Tax | | | | - New York, NY |
| deductions help with this burden. While some level of | | | | - Baltimore, MD |
| taxation is necessary, it is both inappropriate and | | | | - Hartford, CT |
| imprudent to pay more than your fair share. Income | | | | - Indianapolis, IN |
| tax is based on net profit or taxable income. The | | | | - Wichita, KS |
| basic formula for calculating taxable income is | | | | - Detroit, MI |
| revenue less expenses (tax deductions). Expenses | | | | - Charleston, SC |
| can include both direct payments to third parties | | | | - Providence, RI |
| (labor, rent, supplies, etc.) and non-cash deduction. | | | | - Grand Rapids, MI |
| The primary non-cash deductions are depreciation | | | | - Jacksonville, TN |
| and amortization. Tax reduction (tax cuts) are a | | | | - Boise, ID |
| direct result of increasing tax deductions. The tax | | | | - Santa Rosa, CA |
| deduction benefit real estate owners gain from cost | | | | - Columbia, SC |
| segregation is a higher level of depreciation. This | | | | - Columbus, OH |
| non-cash tax deduction reduces taxable income and | | | | - Oxnard, CA |
| income taxes. For example, if the amount of | | | | - Greensboro, NC |
| depreciation increased by $100,000 (as result of a | | | | - Allentown, PA |
| cost segregation study), taxable income would | | | | - Harrisburg, PA |
| decrease by $100,000, and the owner experiences a | | | | - Louisville, KY |
| $35,000 reduction in taxes (based on 35% tax rate). | | | | - Fresno, CA |
| Most real estate owners depreciate real estate | | | | - Akron, OH |
| based upon splitting the cost basis between land and | | | | - Chicago, IL |
| improvements. The property owner or tax preparer | | | | - Portland, OR Cost segregation produces tax |
| typically estimates the portion for the land and | | | | deductions for virtually all property types. Property |
| attributes the balance to long-life improvements. | | | | Type: |
| Long-life improvements depreciate over 27.5 years | | | | - Manufacturing/processing |
| for rental residential property and 39 years for | | | | - Tennis club |
| commercial property While this simplistic method is | | | | - Retirement home |
| lawful, it cheats the real estate owner of tax | | | | - Auto service garage |
| deductions. A cost segregation study identifies up to | | | | - Mini-warehouse |
| 130 short-life components. (Cost segregation is | | | | - Single-tenant retail |
| different than component depreciation, which was | | | | - Medical facility |
| available until the early 1908s. However, the result of | | | | - Hotel |
| both is to increase depreciation and tax deductions | | | | - Retail |
| during the early years of ownership.) These short-life | | | | - Vacant land Almost every industry, including the |
| components typically comprise 20-50% of the | | | | following, can generate cost-efficient tax deductions |
| improvement cost basis and are depreciated over 5 | | | | by using cost segregation. Industry: |
| years (20.0% per year), 7 years (14.29% per year) | | | | - Wood product manufacturing |
| and 15 years (6.67% per year). Depreciation | | | | - Warehousing and storage |
| effectively changes the character of income from | | | | - Truck transportation |
| ordinary income to capital gains income. While the | | | | - Transportation equipment manufacturing |
| maximum income tax rate for ordinary income is | | | | - Textile product mills |
| 35%, the maximum rate for capital gains is 15% (less | | | | - Textile mills |
| than half the ordinary income tax). This affects | | | | - Real estate lesser |
| substantial income tax reduction. Increasing | | | | - Publishers |
| depreciation also affects deferral of payment of | | | | - Printing activities |
| income taxes. Instead of paying taxes (at the | | | | - Plastic and rubber products manufacturing O'Connor |
| ordinary income tax rate) in the year income is | | | | & Associates is a national provider of commercial |
| earned, taxes are paid (at the capital gain rate) in the | | | | property real estate consulting services including cost |
| year the property is sold. Cost segregation | | | | segregation studies, due diligence, insurance |
| effectively generates an interest free loan (until the | | | | valuations, abandonment studies, business personal |
| property is sold) and reduces the tax rate (from | | | | property valuations, commercial appraisals, feasibility |
| 35% to 15%). Click here for a FREE preliminary | | | | studies, highest and best use analyses, and income |
| analysis of tax savings resulting from your property. | | | | tax. |
| Cost segregation produces tax deductions and | | | | Our services benefit owners of all commercial |
| reduces federal income taxes across the country and | | | | property types including multi-family housing, retail |
| in every size market. Below are just a few examples | | | | stores, hospitals, hotels, industrial properties, |
| of where cost segregation generates meaningful tax | | | | manufacturing facilities, medical offices, commercial |
| deductions. City: | | | | offices, restaurants, self-storage units, shopping malls, |
| - Miami, FL | | | | shopping plazas and warehouse/distribution centers. |