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Cost Segregation - Should i include a tax preparation team?

Tax reduction should involve a team with specialized knowledge for the taxpayer and subject industry. Know more on cost segregation services

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Cost Segregation - Should i include a tax preparation team?

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  1. SHOULD I INCLUDE A TAX PREPARATION TEAM?

  2. Tax reduction should involve a team with specialized knowledge for the taxpayer and subject industry. Most tax preparation teams will include an accountant and/or CPA and/or tax attorney. Commercial real estate owners who do not include a cost segregation specialist on the tax preparation team will likely pay excess federal income taxes.

  3. BUT, WHAT IS COST SEGREGATION? It’s a conservative, yet powerful technique for generating federal income tax deductions by properly applying tax regulations to depreciate commercial real estate or apartments. Cost segregation identifies applicable components and establishes the value and correct timeline for depreciation. Under typical circumstances, depreciation is spread out over as long as 39 years. However, cost segregation applies depreciation to parts of the property in 5-, 7- and 15-year increments. This acceleration in depreciation time reduces the income subject to federal income taxes.

  4. PERFORMING A COST SEGREGATION ANALYSIS The building’s cost basis for construction, renovation and repairs is reviewed. A technician goes on site to take detailed measurements and observe the quality and condition of the property. After the site visit, he or she calculates the value of a variety of components using widely accepted pricing resources and local economic conditions. A cost segregation study produces a professional document that is backed by careful research. The results are summarized in a detailed report, documenting the amount of 5-,7- and 15-year property that qualifies for short-life depreciation.

  5. HOW MUCH CAN A COST SEGREGATION STUDY SAVE? The annual tax savings through cost segregation can be significant. The following table summarizes actual first-year tax savings generated in cost segregation reports prepared by O’Connor & Associates, a national real estate consulting firm. A recent client of the firm realized a payback ratio for the first year savings at 4:1 and the payback ratio for the first five years at 20:1.

  6. WHO PREPARES COST SEGREGATION STUDIES TODAY? Appraisal and engineering firms, Big Four firms and spin-offs of Big Four firms are the primary providers of cost segregation studies. Some accounting firms and tax lawyers offer the service but frequently outsource the actual report preparation to an appraisal or engineering firm. With the introduction of new providers, the price gap has widened between lower cost analytical studies and higher rates charged by larger firms.

  7. READ MORE ABOUT COST SEGREGATION www.expertcostseg.com

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