2008 Tax Relief for Investment Property Owners

Share Article

Investment property owners paying income tax for the 2008 tax year should consider the benefits of engineering-based cost segregation as a smart choice to reduce taxable income. Cost segregation is a significant opportunity today that commercial property owners have to reduce their income tax liability. Susan Nichol of Commercial Property Consultants (CPC) describes why San Francisco Bay Area property owners should consider a cost segregation analysis conducted according to IRS standards.

I affiliated with Commercial Property Consultants because they are the leader in the industry. I am also aware that some other cost segregation companies are not experienced enough to provide the full benefit, leaving money on the table for the investor

Real estate investors scrambling to find tax strategies to increase cash flow and reduce taxable income should know that cost segregation is a viable option. The IRS published rules for cost segregation in the 2004 Cost Segregation Audit Techniques Guide as a result of the 1997 Hospital Corporation of America case, allowing investment property owners to use component depreciation once again. Executed properly, cost segregation of a commercial property can offer tax benefits in the hundreds of thousands of dollars.

What type of commercial property qualifies for a cost segregation analysis? Any commercial property with a cost basis of $1 million or more purchased after 1986 and for which the owning entity pays income tax should consider taking advantage of the tremendous tax savings potential of cost segregation. Unfortunately, most property owners think that they are already depreciating their property at the optimal rate only to find that they are on a 27.5 (residential rentals) or 39 year straight-line depreciation schedule. Most investors are not aware that there is a faster way to accelerate the tax benefit.

Enter Susan Nichol, a savvy cost segregation advisor. Her affiliation with Commercial Property Consultants (CPC) has made her a sought-after commodity. CPC is a company specializing in 'engineering-based' cost segregation. "Because I started as an investor, I see just how powerful increased depreciation can be to create cash flow," says Nichol. "This tax strategy affords smaller investors the opportunity to use the same strategies as the larger players," she continued.

What is cost segregation? A simple explanation for this complex methodology is that cost segregation is the tool for accelerating depreciation on components within income producing properties. A cost segregation study is an in-depth analysis of real estate buildings and land improvements. Items such as non-load bearing walls, some interior wiring and lighting can be re-classified from real property to personal property. The timelines can be shortened to 5, 7, or 15 years instead of waiting for decades to see the same level of tax break.

Property owners will want an established company to complete the cost segregation study. "I affiliated with Commercial Property Consultants because they are the leader in the industry. I am also aware that some other cost segregation companies are not experienced enough to provide the full benefit, leaving money on the table for the investor," states Nichol. If considering hiring a firm to complete a cost segregation analysis, be certain they will provide proper documentation to correspond with your tax strategy. Also, be sure that the firm will defend the study should the IRS decide to conduct an audit. "Using an inferior company can cost you in a substantial reduction of your benefit and increases your risk," Nichol warned.

A secondary purpose of the cost segregation study is to provide a vehicle to prove actual values for longer-term assets that can be written off when replaced. "This is a valuable advantage to the engineering-based study over a less detailed study. If you know the value of an asset (like a roof) and it is replaced, you can retire the remaining value the same year the asset was replaced," Nichols added.

What is the process? Nichol works with each client and their tax preparation professional to assure that cost segregation would be beneficial for investment and/or cash flow goals.

The process is easy:
1. A brief meeting occurs to describe the cost segregation process, review a sample study and order a complimentary initial analysis.
2. In about 10 days, the initial findings are ready and if acceptable, the contract is executed.
3. An engineer completes a walk through and the final study is ready within 60-90 days.

Many property types benefit from CPC's methodology including apartments, golf courses, resorts, hotel, retail, manufacturing, mobile home parks, supermarkets and restaurants. With thousands of completed studies, CPC and its engineering groups have the most experience and have a list of satisfied clients, including the Bellagio, The Ritz Carlton, Outback Steakhouse, Costco, Pitney Bowes, Kapolei Golf Course and Office Depot. Smaller properties can also benefit from these impressive tax savings.

Case Study of a Multi-Tenant Office Building:
Tax Benefit Summary
Cost Basis:                $10,634,585
Cost Reallocated            $1,394,418
Reallocated Percent:            13.1%
1st Year Deferred Tax             $277,692*
Total Deferred Tax            $365,223*
*total does not include non-accelerated depreciation

About Susan Nichol

Susan Nichol, CPC Affiliate, has a strong customer service based background. Prior to her focus on commercial real estate, Nichol worked her way up to senior positions in Fortune 100 companies. Under her guidance, one of those company's business units moved from last place to fourth in the nation in customer service ratings. She reduced expenses for another company by leading a team that implemented changes that saved the company more than $14M within 18 months. Nichol received the United Way's Silicon Valley Momentum Award for the greatest company participation improvement. A no obligation, no cost estimate is available by calling Susan Nichol at (408) 250-9262, by emailing Susan.Nichol@cpconsultant.com or visiting http://www.cpconsultant.com/ct.

About Commercial Property Consultants

Commercial Property Consultants' team consists of experienced tax professionals working closely with highly qualified engineers and a network of industry experts to conduct accurate cost segregation studies. Their cost segregation studies incorporate knowledge of a range of real estate services to provide clients with a thorough analysis of capital costs and help maximize the value from capital investments. CPC's experience conducting Cost Segregation Analysis studies has helped commercial property owners realize over $1 billion dollars in tax benefits. CPC has conducted thousands of Cost Segregation studies that were submitted to and accepted by the IRS without audit.


Share article on social media or email:

View article via:

Pdf Print

Contact Author

Visit website