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