Post on 12-Apr-2017
transcript
Cost Segregation StudiesEnhanced Income – Decreased Federal Taxes
Cost Segregation
Studies
• Cost Segregation is a ‘Smart Tax Strategy’
• Valuable but not yet commonly utilized tax strategy
• For Commercial, Investment & Multi-Family Property Owners
• Allows increased cash flow & defers federal tax liabilities.
What is it?
• Purpose is to identify real property §1250 and personal property §1245
• By doing so, personal property assets can be depreciated in 5, 7 or 15 year periods.
• Without, the entire property is depreciated over 27.5 yr (multi-family) or 39 yr (commercial) periods
Is this right for your client?
• Property ownership no early than 1987? * Sweet spot is last 1-7 years
• Commercial, investment or multi-family?
• Improvements in property since ownership?
• Minimum $500,000 value? (practical)*Cumulative property value okay
• Income to shelter?*1000 hrs working in/on RE holdings
• Three year hold? (practical)
So what does this m
ean?
• Immediate increase in cash flow through accelerated depreciation deductions
• Reduced income taxes (and perhaps a case for real estate property tax reduction)
• Typically 10-40% of a properties value can be classified in personal property classes
Before Cost segregation
• 3 Million dollar Apartment
• 80% depreciated over 27.5 years = $87,273.00 per year
• 20% typically and often arbitrarily assigned to land
• Land cannot be depreciated
After Cost segregation
• 3 Million dollar Apartment
• 25% identified as 7 yr personal property = $750,000.00
• New depreciation claimed = $167,142.00
• About doubled depreciation – additional $79,869.00
• 35% tax bracket means a savings of $27,954.00
Other pertinent info
• Returns need not be amended, depreciation ‘catch up’ is allowed
• Land can be assigned a value less than std 20% thereby increasing value that can be depreciated
• Cost segregations don’t create more depreciation but rather re-allocate / front end load.
• Comes down to a ‘Net present Value’ opportunity
• Average property hold? 7 years. Also creates value
• Average cost of a study: $5k to 15k
• New Construction is eligible. Good time to do.
Who can perform
a CSS
• Construction Expertise
• CPA with Core Competency
• Cost & Estimating Experience
• Familiar w/ IRS CSS guidelines
Litmus Test for Personal
Property
• FunctionIntegral to property orOperation of Business
• Move-ability
• Accessorial
• Sole justification
How
it’s done
• Physically Inspect property
• Photos, blueprints, contracts
• Analyze cost data
• Prepare an itemized list of personal property
• Assign value to each asset (RS means or like)
• Reconcile and prepare Final report
• Engineer, appraiser & CPA like team needed
Property Examples
• Airport Hangars • Apartment Buildings • Automobile Dealerships • Automobile Service Centers • Banks • Restaurants • Day Care Centers • Department Stores • Distribution Centers • Fitness Centers • Flex
More exam
ples
• Golf Courses • Hospitals • Hotels • Laboratory/Research Facilities • Manufacturing and Processing Facilities • Marinas • Medical/Surgical Facilities • Nursing Homes/Assisted Living Facilities Office
Buildings • Post Office • Resorts • Restaurants • Shopping Center • Warehouses
How
to Market C
SS
• Increase reputability w/ clients
• Offer as deal maker
• Incentive Seller includes for slow moving property
• To buyer to help close the deal
• New contact point for a Call on past clients
• Use for your own investments
• Re-investment of Tax Savings into new property
• May provide additional ammunition for Property Tax Appeal
Team Effort
Commercial Property Owner
Brokers and Other Experts
CPA / Tax Advisor
Cost Segregation Professional
Example
• EXAMPLE: OFFICE BUILDING
• New construction with capitalized costs of $9,985,548
• Reclassified by tax life:
• 5-Year - 6% - $547,957
• 7-Year - 18% - $1,758,915
• 15-Year - 6% - $646,615
• 39-Year - 70% - $7,032,061 ·
• Present value tax benefit of $469,383
Example
• EXAMPLE: MEDICAL MANUFACTURING FACILITY
• New construction with capitalized costs of $10,400,110
• Reclassified by tax life:
• 7-Year - 20% - $2,014,402
• 15-Year - 15% - $1,637,327
• 39-Year - 65% - $6,78,381 ·
• Present value tax benefit of $504,535
Example
• EXAMPLE: MULTI-FAMILY
• New construction with capitalized costs of $17,460,314
• Reclassified by tax life:
• 5-Year - 11% - $1,921,360
• 7-Year - .1% - $13,260
• 15-Year - 19% - $3,364,612
• 27.5-Year - 70% - $12,161,081 ·
• Present value tax benefit of $514,926