Expert financial investors calculate depreciation to know productivity with tax incentives, avoids impact on the investment. https://www.costsegregationcre.com/payback-ratio-cost-segregation/
Cost Segregation for Commercial Real EstateLearn about cost segregation analysis, a tax strategy used by commercial property owners.
Cost segregation for commercial buildings is like adding a supercharger to a performance car, in terms of boosting already favorable income tax provisions for real estate investors. Real estate is a large part of the economy and has received favorable tax statutes since before the 1950s. Both the magnitude of the real estate industry and its plethora of lobbyists (commercial developers, construction trades, bankers, appraisers, Realtors®, etc) are material factors in providing excellent income tax protection for commercial real estate investors.
Some commercial real estate investors have initially been reticent due to the high payoff ratios of cost segregation for real estate. Year-one pay back ratios are often 10:1 to 100:1. (In other words, a 1,000 to 10,000% return, not counting possible recapture.)
Advantages and disadvantages of cost segregation
- A. Massive depreciation in the early years leads to massive tax savings
- B. Additional gain on sale, if a sale occurs prior to the property going into an estate
- C. Additional gain is typically capital gain contrasted to using the additional depreciation to offset
The U.S. government promulgates income tax statutes for two purposes:
- To raise revenue and
- To impact social and economic behavior.
Congress could easily eliminate cost segregation but has no interest in doing so; it is too obscure and too favorable to wealthy taxpayers. Cost segregation and various forms date back to the 1950s. The term used to be component depreciation. (Some walls / components in the building we occupy today were built a little differently to take advantage of component depreciation.)
Don’t fret about benefiting from massive income tax savings using cost segregation and bonus depreciation. You are simply engaging in economic activity designated by the U.S. Congress as desirable. Think of it as doing your patriotic duty while preserving your family’s / business’ assets wealth!
Finally, there are some uninformed practitioners who believe cost segregation ONLY DEFERS income taxes. This simply is not true. After working with thousands of clients, we can assure you that most of the additional depreciation is recaptured as capital gains income. The extra depreciation likely offsets ordinary income, which has a much higher rate of taxation.
O'Connor's studies are a key component in keeping you IRS compliant!
O’Connor cost segregation studies not only detail all short-life building components, but also provide a breakout of all Units of Property (UoP) as required in the recent IRS Tangible Property Regulations.
We can also help you on assets you have owned for years!Use our cost segregation calculator to determine your first year federal income tax savings.
Cost segregation is a conservative, proven and IRS-defined approach for depreciating commercial properties.Increase in cash flowReduction in current tax liabilityDeferral of Federal Income TaxesAbility to recapture past years
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