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Dear Clients and Friends:
Are you thinking of using cost segregation for tax purposes?
Cost Segregation: Here's what real estate investors need to know:
Savvy real estate investors often focus on minimizing their tax liability by taking advantage of specific tax strategies within our tax law. Cost segregation is a strategic tax planning tool that can shelter taxable income by depreciating specific property components at an accelerated rate.
Real Estate Investors and Commercial Property Owners
WHAT IS COST SEGREGATION? Cost Segregation is a strategic tax savings tool that allows companies and individuals who have constructed, purchased, expanded, or remodeled any real estate to increase cash flow by accelerating depreciation deductions and deferring federal and state income taxes.
BENEFITS OF ACCELERATED DEPRECIATION. The depreciation of a property with a Cost Segregation Study allows for a significant increase in deductions within the first five years.
Assuming a combined tax rate of 41% and a return on investment factor of 8%, every $100,000 of costs shifted from 39-year property to 5-year property creates a present value tax benefit of approximately $22,000. Every $100,000 of costs shifted from 39-year property to 15-year property creates a present value tax benefit of approximately $12,000.
WHO CAN BENEFIT? Any structure used for business or rental property is eligible for the benefits of Cost Segregation. Leasehold improvements or renovation costs may also qualify. These are just a few examples of the type of properties:
PROPERTY TYPE Offices, Apartments, Retail Stores, Auto Dealerships, Restaurants, Veterinary Facilities, Manufacturing Facilities, Dental Offices, Plastic Surgery Centers, Jewelry Stores, Rentals
COST SEGREGATION SERVICES BENEFITS OF ACCELERATED DEPRECIATION The depreciation of a property with a Cost Segregation Study allows for a significant increase in deductions within the first five years.
TIMING IS EVERYTHING The ideal time for a Cost Segregation Study can vary depending on an owner's tax situation. Although the study's optimum time is during the year a building is built, purchased, or remodeled, depending on the circumstances, a study can be beneficial any time afterward. Current Internal Revenue Service procedures make it easy to go back and claim missed depreciation on assets acquired as far back as 1987 without amending prior tax returns. Our experts will help analyze your tax situation to identify the right timing for you.
Let's Chat. Book your appointment to see if you qualify.
Miguel A. Palma, CPA, PFS, CGMA
Founder of Palma Financial Services, Inc.
Palma Financial Services, Inc. ("PFS")has helped small business owners minimize income taxes and build wealth since 1998.
PFS has achieved positive results for its clients, but our top clients' successes are not typical. Because past performance is not a predictor of future success, you may have more or less success depending on many factors, including your background, experience, work ethic, client base, and market forces. Additionally, at times we may discuss the law or new and pending legislation. Please know our understanding of it is continuously changing. You cannot and should not rely upon these communications for legal, financial, or accounting advice. For the latest updates, set up a time here.