Savings Tax Strategy – Cost Segregation

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Have you built, purchased or renovated a building in the past 10 to 20 years?

If your answer is “yes”, it is likely you are paying too much federal income tax. Commercial Capital works with commercial property owners and their CPA’s from across the nation to increase cash flow from constructed buildings, purchased properties and renovations by accelerating depreciation expense deductions.

Through what is called “cost segregation”, the components of a building are reclassified into proper class lives according to MACRS (Modified Accelerated Cost Recovery System), case law and IRS revenue rulings. MACRS property is tangible, depreciable property that has been placed in service since December 31, 1986 as prescribed by the Tax Reform Act of 1986. For example, a building’s floor, roof and walls might be classified as 39-year section 1250 real property; site improvements such as sidewalks and landscaping would be classified as 15-year section 1250 real property; communications equipment and general office furnishings as 7-year section 1245 tangible personal property and carpeting, decorative lighting and computer associated items as 5-year section 1245 personal property.

Commercial property owners seeking federal income tax relief should consider cost segregation

Cost segregation is the IRS approved method of re-classifying components and improvements of your commercial building from real property to personal property. This process allows the assets to be depreciated on a 5, 7 or 15-year schedule instead of the traditional 39-year life of real property. Thus your current taxable income will be greatly reduced and your cash flow will increase $60,000 to $60,000 to $100,000 for every $1,000,000 of building cost. This is your money to use now.

If you own or lease a facility, the depreciation deduction is one of the most significant, but often overlooked opportunities to reduce the income tax liability. Whether you are buying, building or improving a building, we can help maximize your income tax deductions through our in-depth cost segregation service

Cost segregation studies are one of the most valuable tax strategies available to owners of commercial real estate today. This increasingly popular phenomenon, offers facility owners the opportunity to defer taxes, reduce their overall current tax burden, and free up capital by improving their current cash flow. Virtually every taxpayer who owns, constructs, renovates, or acquires a commercial real estate structure stands to benefit from a cost segregation study.

Depreciation is a non-cash tax deduction which reduces federal income taxes. Commercial real estate owners often overlook a tax reduction opportunity by using simplistic methods to develop their depreciation schedules. Federal income tax preparation has become complex often involving CPAs, accountants and tax lawyers. However, even these experts do not have the depth of knowledge in all areas to affect all possible tax cuts. Commercial property owners seeking federal income tax relief should consult a cost segregation specialist. Cost segregation increases tax deductions by accurately depreciating real estate.

Cost segregation is not a tax shelter or tax evasion scheme. It is an IRS defined and guided tax reduction tool. Commercial property owners are often uncertain how to seek tax tips or tax advice. Tax preparation should include a team. Taxpayers with real estate investments will generate more tax deductions by including a cost segregation expert on their team.

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The practice of Cost Segregation has been around for decades. However, recent changes to the law and court decisions have made it more beneficial. Ninety-percent of all commercial property investors are overpaying their federal income taxes, leaving a rather large untapped market for anyone able to offer these services. Though it has been around in its current form, since 1987; Cost Segregation was for some time, almost solely offered by Big 4 accounting firms and a handful of large real estate consulting companies, both of which tend to work with Fortune 1000 companies. With very few qualified practitioners for small to medium size taxpayers, the service was not cost effective. Within the last few years, however, Cost Segregation has become available, at a very reasonable cost, to smaller companies and individual property owners.

“Cost Segregation is a lucrative tax strategy that should be used in almost every major purchase of Commercial Real Estate.”

-Wall Street Journal