Summary:  Cost Seg. is an underutilized strategy that commercial real estate investors can employ to reduce their taxes, improve their ability to fund new properties and increase their purchases.  Below I have adapted information provided me by one of the nation’s leading authorities on Cost Segmentation Studies.

As we all have enjoyed our Holiday Season, sadly the next event we face involves the perennial tax deadlines.  This year you could apply cost segregation and save considerable money. Cost Segregation is the least utilized and most cost efficient way to save tens and even hundreds of thousands of tax dollars on the commercial properties that you own, represent or manage. Unless you take action soon, you will forgo these tax deductions.

Reasons why you should learn more about Cost Segregation: Cost segregation is the spigot that taps the hidden “cash flow” in every commercial property, including apartments. Less than 10% of all commercial property owners have utilized cost segregation. The reasons vary but in general it is due to a lack of awareness and because the 1997 Supreme Court ruling requires than the cost segregation be prepared by an independent cost-engineer – not an accountant. In addition up until 2001, the cost of cost segregation services were prohibitive – this is no longer true.

Recent court rulings and changes in IRS filing procedures make this tax savings benefit fully accessible to owners of any size commercial property.

Property owners now need only file a single form accompanied by a cost seg report prepared by an independent cost engineer — no costly, formal, multi-stage appeal process is required. You can even file for a previous year’s reduction in Federal and state taxes. All these funds are “hidden cash flow” for the business owner. These monies become a new source of investment capital. In addition to these Federal tax benefits there are other significant monetary gains.

Big Dollar Returns – TRIFECTA of Cost Seg

The cost seg diagnostic results are significant. Almost everyone (95% or more), will be able to immediately save tens of thousands to even hundreds of thousands of dollars on each commercial property. In general, about $15 for every $100 of new construction or existing building acquisition cost is eligible for accelerated depreciation. This means a $3MM building has the potential for $150,000 to $200,000 in Federal tax savings. Besides, the initial tax rebates and cumulative tax savings – the price is right!

The CS reports can also reduce local property taxes. Finally, the increased debt coverage and ROI returns enhance both the refinancing and sales potential of any commercial business. After a cost seg evaluation, a marginal asset based loan candidate becomes a top rated asset based loan candidate. Tax reduction (income and property), enhanced loan financing and increased sales value comprise the famous Cost Seg “TRIFECTA” of winnings! This is how to maximize real estate investment returns.

Cost Seg and Alternative Minimum Tax

Cost Segregation and Alternative Minimum Tax (AMT) Requirements Cost segregation shelters the real estate income of every property owner. Three factors determine the extent of this tax benefit. The first factor is the amount of the assets that qualify for accelerated depreciation. The second factor is whether the property owner is s a passive or an active investor. The third factor is whether the property owner is subject to the alternative minimum tax rules.

Any property owner subject to the AMT would only lose that portion (i.e. up to 15%) of the tax savings required for AMT payments. In other words, AMT requirements reduce cost seg tax savings– cost seg never increases and can only reduce taxes. In a worst case where a property owner was paying no Federal tax other than AMT, the property owner would still realize $85 in tax savings for every $100 of potential “depreciation sheltered” Federal taxes.

Assurance of Success…

The Cost Seg. firm I recommend has a 100% success rate on nearly 5000 IRS filings made after the 1997 Supreme Court ruling. Their perfect IRS track record is unmatched in the industry. They were the cost-engineering firm of record for the landmark 1997 Supreme Court ruling that opened Cost Seg to wide use. Since then, their cost segregation reports became the quality standard for IRS staff review. Although, it has never been necessary, they have a “standing commitment” to defend our conclusion with the IRS staff or in court at no expense to the client. No other cost segregation firm is willing to make this commitment.

Offer of “no cost-no obligation” diagnostic analysis

The best way to demonstrate the significance of cost segregation to the real estate interests of the clients of Rose City Commercial Realty is to offer you the opportunity to evaluate one, two or three of your representative properties.

The results are conservative but accurate. When a client authorizes a detailed study (which includes a site visit), the results will usually be 10-15% higher. This standard practice ensures that you will have long-term satisfaction.

The information requirements for a diagnostic analysis are minimal. They include:

1). The address of the property

2). The date of purchase and the purchase price.

3). Property type (apartment)

4). List of any improvements or and the cost or estimated cost there of.

5) If available, a copy of the most recent depreciation table on the property.

Call me at 503.577.1034 for your no cost, no obligation Cost Seg Feasibility Study.

Rick Bean

RoseCity Commercial Real Estate

Rick@rosecitycre.com

Tags: accelerated depreciation, alternative minimum tax, apartments, cash flow, commerical real estate, Cost Seg., investment, Rick M. Bean

This entry was posted on Tuesday, January 13th, 2009 at 2:10 pm and is filed under Demystifying Investing, Investment Strategies. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.