Tax Reduction Through Cost Segregation for Retail Real Estate
Tax reduction is one way retail real estate owners can increase their cash flow. Cost segregation is a relatively unknown yet safe and powerful method to achieve federal tax reduction for owners of retail real estate. It is safe (when prepared by a competent, ethical appraiser) because the IRS has codified safe harbor guidelines for preparation of a cost segregation study in their Audit Technique Guide. It is a powerful tax reduction tool; retail real estate owners can typically save 5 to 10 times the cost of the report in first year tax savings.
Cost segregation reduces the amount of federal income taxes and defers payment of taxes. It reduces the total amount of taxes by revising the character of income to capital gains (instead of ordinary income). Payment of taxes is deferred until the retail real estate is sold.
Tax reduction through cost segregation changes the characterization of income by increasing depreciation, a non-cash tax deduction. Depreciation increases as a result of accurately allocating a portion of the cost basis to short-life categories. Most depreciation schedules assign all or almost the entire improvement basis to long-life property (39 years for retail real estate). However, it is both appropriate and lawful to allocate a portion of the cost basis to short-life components. These short life components are depreciated over 5, 7, or 15 years (instead of over 39 years for long-life property). The following table illustrates the higher level of annual % depreciation for short-life categories:
| Life (years) |
Annual Percent of Depreciation |
| 5 year |
20% |
| 7 year |
14.3% |
| 15 year |
6.7% |
| 39 year |
2.6% |
Cost segregation studies typically allocate the following portion of the improvement cost basis to short-life categories:
| Depreciation Life (years) |
Proportion of Improvement Cost Basis |
| 5 year |
8% |
| 7 year |
1% |
| 15 year |
24% |
Retail real estate investors can safely reduce and defer income taxes by obtaining a cost segregation study from a credible, qualified appraiser.
Click here for a FREE preliminary analysis of tax reductions resulting from your property.
Cost segregation produces tax deductions and tax reductions across the country and in every size market. Below are just a few examples of where cost segregation generates meaningful tax deductions.
City:
- Houston, TX
- Las Vegas, NV
- Atlanta, GA
- New York, NY
- Memphis, TN
- Baltimore, MD
- Washington, DC
- Boston, MA
- Bridgeport, CT
- Philadelphia, PA
- Detroit, MI
- Minneapolis-St. Paul, MN
- Springfield, MA
- Louisville, KY
- Scranton, PA
- Stockton, CA
- Albany, NY
- Worcester, MA
- Toledo, OH
- Jackson, MS
- Nashville, TN
- Dayton, OH
- Oxnard, CA
- Des Moines, IA
- Poughkeepsie, NY
- Riverside, CA
- Syracuse, NY
- Birmingham, AL
- Grand Rapids, MI
- Pittsburg, PA
Cost segregation produces tax deductions and tax reductions for virtually all property types.
Property Type:
- Hotel
- Airplane hangar
- Used car lot
- Land
- Bar
- Cold storage facility
- Department store
- Fast food restaurant
- Truck terminal
- Shopping center
Almost every industry, including the following, can generate cost-efficient tax deductions and tax reductions by using cost segregation.
Industry:
- Chemical manufacturing
- Air transportation
- Publishers
- Real estate lesser
- Machinery manufacturing
- Frozen food manufacturing
- Metal manufacturing
- Golf courses and country clubs
- Furniture manufacturing
- Paper manufacturing
|
