Is this new?
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.
How Clients Benefit
Cost Segregation allows tax payers to increase cash flow by
accelerating depreciation expense and deferring federal and
state income taxes in the current year.
The economic value of properly classifying an asset as
personal property with a 7-year depreciation cycle instead of
real property with a 39-year cycle is approximately 15% to
20% of the asset’s cost, based on present value after taxes.
Clients that have built or purchased buildings or facilities as
far back as 1987 and have not performed a cost segregation
may benefit from a Revenue Procedure 2002-9 Study which
allows for the correction of missed depreciation in past years.
Cost segregation studies are beneficial in all geographic
markets and in a wide range of property and business types.
Building types:
•Amusement park
•Apartments
•Auto dealer
•Auto service garage
•Bank
•Bowling alley
•Car wash facility
•Cold storage facility
•Commercial building
•Convenience stores and more...
"Industry-leading real estate professionals across the nation are aware the
cost-segregation industry is in a time of explosive growth.
Recently, cost segregation has become one of the most valuable tax-
deferral strategies to take the mainstream commercial real estate community
by storm.
To understand the sudden growth of the industry, you first need to grasp
how many taxpayers have realized substantial increases in cash flow as a
result of recent tax law changes. Then you'll understand why tax
accountants, general contractors, real estate consultants, brokers and 1031
exchange firms are enlisting the services of cost-segregation firms, and
finding effective ways to offer cost-segregation services to their clients."
- Scott Zarret, The Denver Business Journal - April 23, 2004
What are the Key Benefits of Cost Segregation?
The key benefits of cost segregation can be summarized as
follows:
• Substantial Reduction in tax liabilities.
• Increased cash flow through accelerated depreciation.
• Enhance your real property’s financial returns.
• Corrects misclassified assets and provides opportunity to
claim missed "catch up depreciation" in the current
year.
• Renovations, remodeling and replacement will be less
costly due to detailed breakdown of building
components.
• Real estate property taxes may be reduced.
• Demolition and rehabilitation: allows property owners
to write off certain assets as opposed to capitalizing
those assets.
Timing:
•Post-purchase, Remodel, or Construction, “Look-back”
Studies: A Study can be completed anytime after the
purchase, remodel, or construction of a property. In fact,
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.
•Year Placed in Service: The optimum time for a Study for
new owners, is during the year a building is constructed,
purchased, or remodeled. This allows an owner to
immediately optimize tax savings and accurately classify
assets before the building even begins to depreciate.
•Pre-construction: For investors who are in the planning
phases of construction or remodeling, the best time to
consider a Cost Segregation Study is before the infrastructure
of the building is set.
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WALKER BRYCE & ASSOCIATES
COST SEGREGATION & FIXED ASSET OPTIMIZATION SPECIALISTS
"Cost Segregation is a lucrative tax
strategy that should be used in
almost every major purchase of
Commercial Real Estate."
-Wall Street Journal
June 2003
REDUCE TAXES
INCREASE CASH FLOW
What does a cost segregation
study look to accomplish?
The principle goal of a cost
segregation study is to increase
cash flow from constructed
buildings, purchased properties
and renovations, by accelerating
depreciation expense deductions.
Through this analysis, the
components of a building are
reclassified into proper class
“lives” according to government
legislation, case law, and IRS
revenue rulings/procedures.
Substantial tax savings can be
achieved by accelerating
depreciation deductions.
|
BENEFITS
Money doesn't grow
on trees...But can it be
hidden in your walls?
•Maximizing your annual
depreciation expense
•Reducing your income tax costs
•Improving your cash flow
TOP TEN MYTHS ABOUT
COST SEGREGATION STUDIES
© 2006 Walker Bryce & Associates LLC. All Rights Reserved.
