Loopholes of the Rich: What is Cost Segregation?
Steve Ruf and Darrell Weaver of Cost Segregation Authority joined us for a Master Mind last night to talk about how to enjoy enormous tax savings on your commercial properties.
Cost Segregation is a way to increase/accelerate depreciation and maximize tax deductions on commercial property. By performing a study, whereas they do a reclassification of assets to increase cash flow and maximize tax deduction, investors can enjoy benefits that are unknown to most investors.
Cost segregation is now approx.10 yrs old. How did cost segregation get into the main stream? The IRS put conditions on it to control how it is used. Surprise, surprise! Large real estate companies use this method, such as Trump Realty and the Bellagio. Small producers are usually not familiar with cost segregation. Darrell Weaver adds that it is essentially a “tool of the rich.”
Please add your two cents on cost segregation if you have some cents…!
Contact info for Darrell Weaver: dweaver@costsegauthority.com
Posted by Corey of Project Liberty
Project Liberty,
ReplyDeleteThank you for having us present last night; it was our pleasure.
I wanted to comment more on what is cost segregation & how it now only directly benefits your members but anyone who owns commercial property.
We’re cost segregation experts & have been doing cost segregation studies since 1998. We’ve done hundreds of millions of dollars worth of property & saved our clients equal amounts of money on their properties.
What is Cost Segregation?
To refresh, Cost Segregation is a financial & engineering-based analysis of all expenditures associated with a property. The objective of the cost segregation study is to help building owners save money. Thus, the end result of the cost segregation study is a reclassification of assets that allows for a maximization of tax benefits & improved cash flow on your property.
Below I have included a short white paper about cost segregation with an example.
I’d love to talk to anyone who owns commercial property & provide them with a free analysis to see if we can help them.
Below I have included first a white paper on what cost segregation is & second, what information we need from you to get a free analysis & proposal back to you.
Thank you,
Darrell L. Weaver
Director of Business Development
Cost Segregation Authority
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Cell: (801) 822.2928
Office: (866) 522.7555
Fax: (866) 589-8871
510 East 770 North Orem, UT 84097
http://www.CostSegAuthority.com
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Benefits To Commercial Property
We will conduct a free analysis of any commercial properties to show how a cost segregation study will significantly reduce the owner’s taxable income & increase cash flow.
Why Do This?
Increased cash flow
A Cost Segregation Study will do three important things for you:
1. Creates Immediate Tax Savings—A cost segregation study will create immediate, Year 1 tax savings on commercial real estate.
2. Increase Cash Flow—By adjusting the timing of the depreciation deductions, you spend less cash paying taxes on their building & redirect these funds to other aspects of the business.
3. Catch-Up Depreciation—Cost segregation allows you to "catch-up" previously under-reported depreciation without filing any amended tax returns. All "catch-up" depreciation can be utilized in the tax return filed after obtaining a cost segregation study, without filing any amended tax returns.
But, most importantly, it helps you realize immediate cash flow. Naturally, anyone who owns commercial property would rather keep more of the money they're currently paying in taxes to the IRS to be used for other parts of their business, right?
Can't Our CPA or Accountant Do This?
No, unfortunately not. The IRS requires that a Cost Segregation Study be an engineering based analysis of a commercial real estate property that is completed by a firm that has combined both certified engineers & CPA's.
The IRS further requires a full understanding of IRS construction case law & their 200 page cost segregation audit manual which exhaustively covers their 13 points to a cost segregation study.
This audit manual is an exhaustive treatment of those items qualifying for shorter depreciable lives & knowledge of commercial real estate taxation & construction engineering.
Finally, each cost segregation study must be signed by a CPA & an certified engineering expert; both of whom are willing to testify to the accuracy of the report.
Most CPAs are understandably either too busy or not fluent in the detailed specifics of cost segregation & its application to tax accounting.
Cost Segregation Authority is comprised of cost engineers, & CPAs therefore all the expertise needed is in one team.
We don't want to take the place of an owner's CPA firm, but rather we welcome the opportunity to work with them to ensure all of the assets are depreciated properly & you're getting freeing up money for your business.
A Real World Example
Here’s an example of a client’s building:
Their Cost of Property in 2007 was $10,000,000 million dollars (excluding land). Through our study they were able to realize $764,759 in 2007 Tax Savings which they would have had to pay the IRS without our study.
That $764,759 can now be used elsewhere in their business for remodeling, purchase of other facilities, paying down debt, etc.
Extra Benefits Of Cost Segregation
Those clients that own, or are lessees of, a commercial building and install property as part of the commercial building’s interior lighting systems, heating, cooling, ventilation, and hot water systems, or building envelope, they may benefit from the availability of substantial tax deductions.
2008 Economic Stimulus Package
The recent stimulus package allows you take an additional 50% deduction on properties placed in service between 2008 & 2009 but, you can only get this extra deduction if you do a cost segregation study therefore, it’s imperative that we at least get you a free analysis & show you how this would benefit.
Sold Properties
Finally, you can conduct a cost segregation on any properties of which you may have disposed within the last three years even though they’re not currently part of your holdings & receive back overpaid taxes on those properties.
I can almost guarantee that anyone who’s sold a property in the last 3 years has left money on the table.
Naturally, we would assist in any amendments & associated paperwork.
Insurance Benefits
• Due Diligence—Conducting a cost segregation study in conjunction with an insurance appraisal demonstrated due diligence on the part of the board members, property manager and/or insurance agent.
• Accurate Insured—Building owners, board members, managers and/or agents have piece of mind knowing that the property & all its assets are accurately insured.
• Correct Carrier—a combined cost segregation study & an insurance appraisal will assist your agent in placing the property coverage with a carrier by providing documentation that underwriters need to write coverage.
• Stops Underinsuring—Prevents under-insuring, which puts the property at risk for having the proper rebuild funds in the event of a catastrophic loss, and prevents over-insuring, which results in paying extra insurance premiums.
• Unbiased Analysis—a cost segregation study provides an unbiased, third party, analysis of the property’s replacement cost.
• Quick Settlement—Time is money & if a loss occurs, a cost segregation study accompanying all data acquired in performing the study, will help the client to expedite the settlement of the claim.
• Complete Documentation—we will take digital photographs during our physical inspection of the property and assets which are electronically achieved for the clients use in the event of a loss.
To provide you with a free proposal, please give us the following:
New Construction:
1. What was the construction costs excluding the land?
2. What type of building is it?
3. When was it put in service?
Great To Have’s, but not critical:
1. Project Budget
2. Final AIA Payment Application
3. Indirect Costs
4. Construction Contact Person
Purchased Property:
1. What did you buy it for? (Does that include land & have you 1031 any money into the property?)
2. What year did it get put into service?
3. What type of building is it?
Great To Have’s:
1. Closing statement
2. Depreciation Schedules
3. Site Survey Drawings
4. Facility Contact Person
Sold Properties within the last 3 years
1. What it was purchased for (excluding land)
2. What it was sold for (excluding land)
3. Type of building—e.g., office complex, warehouse, hospital, retail shopping, etc.