Spectrum Enterprises LLC
Cost Segregation Myths & Facts
Cost segregation is generated by tax reduction and tax deferral. However, most real estate investors and tax preparers do not understand this tool. Communication gaps such as the limited dissemination of factual data about the subject is the root cause of limited understanding regarding cost segregation. Discussed below are the myths and the facts.
The most prevalent myths include:
By converting income taxed at the ordinary income rate of 35% maximum and the capital gains rate of 15% maximum, cost segregation provides tax reduction. During the ownership period, real estate investors can use shelter income from the property or other sources; which cost segregation generated from additional depreciation. This income would have been taxed at 35% in many cases.
Upon sale, collectively allocating the sales price is what the property owner and tax preparer does. In most cases, depreciation and the market value of these assets (at the time of sale) equals their depreciated cost basis as shown by short-life property such as carpet, vinyl tile and paving. In this event, the capital gains rate is taxed by the additional depreciation. Hence, both tax reduction and tax referral is gained by the real estate investor.
Cost segregation now includes studies for financially feasible properties that have a cost basis of at least $10 million, when before cost segregation used to cost $20,000 to $50,000 per property. However, fees are much lower now for cost segregation studies. If the cost basis of improvements is at least $500,000, it generally makes sense to order a cost segregation study. In most cases, the fee for the study is at least two to four times for the first year tax reduction.
It is completely inaccurate to say that the myth about cost segregation studies is a risky scheme. It generates a more accurate accounting that’s why a properly prepared cost segregation study is encouraged by the IRS. The background and proper methodology for a cost segregation report is found in the Audit Techniques Guide 100-plus-page manual.
The Audit Techniques Guide should be studied and understood by both the advisors and appraisers (who perform cost segregation studies). The IRS encourages cost segregation studies. In private correspondence, a cost segregation study does not increase the change of an audit as indicated by an IRS staff.
If you are a real estate investor or use real estate in your business, ignore the myths, increase your tax reductions and tax deductions. and obtain a free preliminary analysis to determine if you could benefit from a cost segregation study.
Tax deductions and reduced federal income taxes across the country and in every size market is what cost segregation produces. Below are just a few examples of meaningful tax deductions generated by cost segregation.
Tax deductions for virtually all property types are produced from cost segregation.
Property Type:
Industry:
Spectrum Enterprises, LLC was created by investors for investors. We
recognize the importance of maximizing cash flow and profitability in
your real estate endeavors in Baltimore, MD. Spectrum specializes in a
myriad of services, which consists of investments, consulting, sales and
property management. www.spectrum-ent.net
The most prevalent myths include:
- Only tax deferral is provided in cost segregation, not tax reduction.
- It takes too much expense to do cost segregation. Properties with a cost basis of $10 to $20 million or more applies to this.
- It takes a tax shelter likely to cause an audit because cost segregation is risky.
By converting income taxed at the ordinary income rate of 35% maximum and the capital gains rate of 15% maximum, cost segregation provides tax reduction. During the ownership period, real estate investors can use shelter income from the property or other sources; which cost segregation generated from additional depreciation. This income would have been taxed at 35% in many cases.
Upon sale, collectively allocating the sales price is what the property owner and tax preparer does. In most cases, depreciation and the market value of these assets (at the time of sale) equals their depreciated cost basis as shown by short-life property such as carpet, vinyl tile and paving. In this event, the capital gains rate is taxed by the additional depreciation. Hence, both tax reduction and tax referral is gained by the real estate investor.
Cost segregation now includes studies for financially feasible properties that have a cost basis of at least $10 million, when before cost segregation used to cost $20,000 to $50,000 per property. However, fees are much lower now for cost segregation studies. If the cost basis of improvements is at least $500,000, it generally makes sense to order a cost segregation study. In most cases, the fee for the study is at least two to four times for the first year tax reduction.
It is completely inaccurate to say that the myth about cost segregation studies is a risky scheme. It generates a more accurate accounting that’s why a properly prepared cost segregation study is encouraged by the IRS. The background and proper methodology for a cost segregation report is found in the Audit Techniques Guide 100-plus-page manual.
The Audit Techniques Guide should be studied and understood by both the advisors and appraisers (who perform cost segregation studies). The IRS encourages cost segregation studies. In private correspondence, a cost segregation study does not increase the change of an audit as indicated by an IRS staff.
If you are a real estate investor or use real estate in your business, ignore the myths, increase your tax reductions and tax deductions. and obtain a free preliminary analysis to determine if you could benefit from a cost segregation study.
Tax deductions and reduced federal income taxes across the country and in every size market is what cost segregation produces. Below are just a few examples of meaningful tax deductions generated by cost segregation.
Tax deductions for virtually all property types are produced from cost segregation.
Property Type:
- Auto dealing shops
- Convenience stores
- Department stores
- Drugstores
- Fast food restaurants
- Land Properties
- Medical facilities
- Family-owned corporations
- Self-storage facilities
- Service center warehouses
Industry:
- Manufacturing of apparels
- Distributorship of automotive parts
- Dealership of building supplies
- Manufacturing of electrical components
- Manufacturing of frozen foods
- Golf courses and country clubs
- Manufacturing of plastic and rubber products
- Publishing houses
- Textile product mills
- Wood product manufacturing
Spectrum Enterprises, LLC was created by investors for investors. We
recognize the importance of maximizing cash flow and profitability in
your real estate endeavors in Baltimore, MD. Spectrum specializes in a
myriad of services, which consists of investments, consulting, sales and
property management. www.spectrum-ent.net
