Enter your email address for weekly access to top multifamily blogs!

Multifamily Blogs

This is some blog description about this site

Is Paying for a Cost Segregation Analysis Beneficial?

Is Paying for a Cost Segregation Analysis Beneficial?

If you were told as a real estate professional that there was a tax credit that could save you thousands in taxes, increase your cash, and allow you to allocate your funds for new investments. You would not only be asking the question: 'Is Paying for a Cost Segregation Analysis Beneficial?' but also 'Why have I not heard of this money-saving benefit?'

Cost segregation has been around for some time. In 1997, the Hospital Corp of America and Walgreens Pharmacy appealed that shorter periods should be available, rather than waiting for 27 ½ to 39 years to get their tax returns. These schedules now follow a five-year, seven-year, 27 ½ years and 39 year depreciation time frame. Here is a breakdown of the classifications and depreciation periods.

Breaking Down the Cost Segregation Classifications

Classification 1 - Building and Personal includes the items added to the property, such as window treatments, moldings, wall coverings, and appliances. These have a five-year depreciation time frame. 

Classification 2 - Site Work and Land Improvements include the work done before the foundation is laid down. These works include soil grading, removal, and all the work done around the construction site's surrounding areas. An example of what falls in this classification are driveways, irrigation systems, patios, and landscaping. These have a 15 year depreciation time frame. 

Classification 3 - Building Structure includes the building, its foundation, roofing system, exterior facade, plumbing, windows, doors, and frames. These have a 27 ½ years depreciation time frame. 

Reasons Why Paying for a Cost Segregation Analysis is Beneficial

Most people overlook that there are benefits that they can get from the very start rather than basing it on a depreciation schedule. The cost segregation analysis presently helps businesses save on their federal income taxes while building on their property portfolios. 

While it takes a team of licensed property engineers to conduct the cost segregation analysis based on their professional understanding of architectural drawings, mechanical and electric plans, read blueprints, and knowledge in bid documents and current tax laws. The overall analysis breaks down all the components in the building of the multi-family, single-family, duplexes, and rental properties into tax classification. Each classification has a different depreciation schedule. 

Early cash-in of money you are entitled to is the first reason why paying for cost segregation analysis is beneficial. By analyzing the components early on, you can start to get your tax refunds rather than waiting for the traditional 27 ½ years. The second reason is that you can combine the components under Classification 2 with cost segregations and accelerate their depreciation time frame. These refunds can lessen the burdens brought about by the construction expenses from the new land and site improvements early on. This benefit does not apply to renovated properties because they have already depreciated. The third and final reason is the cost segregation analysis will give you a detailed study of the real estate property that will be useful during auditing by the IRS.  

Rate this blog entry:
0
 

Comment Below

  1. Posting comment as a guest. Sign up or login to your account.
Attachments (0 / 3)
Share Your Location
In multifamily real estate when an investor has built momentum, they are extremely hard to compete against. Every broker and seller wants to do business with them. In this video we discuss The Law of The Big Mo as author John C Maxwell calls it in his book The 21 Irrefutable Laws of Leadership.    Below are THE 7 KEY FACTS ABOUT MOMENTUM from John Maxwell's book: 1. MOMENTUM IS THE GREAT EXAGGERATOR When deals are being brought to you, and you’re closing, and more investors continu...
A few weeks ago I wrote about the prospect of the repeal of Costa-Hawkins act in California.  This measure is being pushed by tenant rights groups claiming it will help with affordable housing.  Although I do believe there is an affordable housing crisis, I do believe that the repeal of Costa-Hawkins  would only be a short term relief and significantly hurt affordable housing in the long term.  So what can cities do to address the affordable housing crisis? Cities have ...
According to a press release that the U.S. Census Bureau shared late last month, 11.7% or 35.9 million U.S. residents moved their primary residence in the 2012-2013 year. This translates to a drop of about 12% compared to this same time period from the year prior. When comparing the data found in the Geographical Mobility report published in 2013, these statistics show 2013’s numbers to be very similar to the 11.6% reported in 2011. Researchers found that 48% of Americans c...