More Tax Deduction Means Tax Reduction

More tax deductions means tax reductionImportant Commentary for Owners of Real EstateBy Patrick O’Connor,Guest Posting MAIMost commercial real estate owners are paying excess federal income taxes because they are not depreciating their property as quickly as they should. A cost segregation study allows property owners to both defer and reduce federal income taxes. Cost segregation increases depreciation (a non-cash deduction) for commercial real estate owners. When properly performed by an appraiser with expertise in cost segregation, this is a conservative tax planning tool which reduces federal income taxes by properly allocating the cost basis between land, 5-year, 7-year, 15-year, 27.5-year and 39-year property. (Long-life depreciation is 27.5 years for residential rental properties and 39 years for commercial properties. Carpet and vinyl tile are typical 5-year items. Site improvements tax agents near me such as landscaping and paving are 15-year items.)Depreciation is an important non-cash tax deduction. By increasing tax deductions, commercial property owners affect federal income tax reduction. (Depreciation indirectly reduces income taxes by reducing taxable income. Income tax credits directly reduce income taxes.) The increase in tax write-offs generates such a large tax cut that some wonder if it is a tax shelter or tax evasion scheme. It is not. Cost segregation is an IRS-guided process used to increase tax deductions during the tax preparation process. The IRS has provided a detailed explanation of the items that qualify for short-life depreciation and acceptable methodologies for performing a cost segregation study. Cost segregation studies performed by appraisers in compliance with the IRS’s Audit Techniques Guide are unlikely to be challenged in an audit. Commercial real estate owners seeking tax advice and tax relief can benefit from reviewing the tax relief available from cost segregation.Cost Segregation Study Benefits include Tax Deductions and Tax ReductionBenefits of a cost segregation study are substantial, immediate and enduring. Year 1 federal income tax savings are typically at least two times the cost of a cost segregation study. In many cases they are five to fifty times the cost of the study. The present value of federal income tax savings for a property held for ten years are typically at least ten times the cost of the study. In many cases, the present value of tax savings as much as 30 to 50 times the cost of the report. The cost segregation study is only required once. Its cost is not recurring, but the benefits are recurring during the term of property ownership.