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Tax Reduction and Cost Segregation – Myths and Facts
The most prevalent myths include: Cost segregation does not provide tax reduction, only tax deferral. Cost segregation is too expensive. It only works for properties with a cost basis of $10 to $20 million or more. Cost segregation is risky; it is a tax shelter likely to cause an audit. All three myths are simply incorrect. Cost segregation provides tax reduction by converting income which would have been taxed at the ordinary income rate (35% maximum) to income taxed at the capital gains rate (15% maximum). During the ownership period, cost segregation generates additional depreciation real estate investors can use to shelter income from the property or other sources. In many cases this income would have been taxed at 35%. Upon sale, the property owner and tax preparer will collectively allocate the sales price. In most cases, short-life property such as carpet, vinyl tile and paving have depreciated and the market value of these assets (at the time of sale) equals their depreciated cost basis. In this event, the additional depreciation is taxed at the capital gains rate. Hence, the real estate investor gains both tax reduction and tax deferral. Cost segregation used to cost $20,000 to $50,000 per property and was only financially feasible for properties with a cost basis of at least $10 million. However, fees for cost segregation studies are now much lower. It generally makes sense to order a cost segregation study if the cost basis of improvements is at least $500,000. In most cases, the first year tax reduction is at least two to four times the fee for the study. The myth about cost segregation studies being a risky scheme is completely inaccurate. A properly prepared cost segregation study is encouraged by the IRS since it generates more accurate accounting. The Audit Techniques Guide is a 100-plus-page manual regarding the background and proper methodology for a cost segregation report. Both the advisors and appraisers (who perform cost segregation studies) have studied and understand the Audit Techniques Guide. Cost segregation studies are encouraged by the IRS. In private correspondence, IRS staff has indicated a cost segregation study does not increase the change of an audit. If you are a real estate investor or use real estate in your business, ignore the myths and obtain a free preliminary analysis to determine if you could benefit from a cost segregation study and increase your tax reductions and tax deductions. Click here for a FREE preliminary analysis of tax savings resulting from your property. Cost segregation produces tax deductions and reduces federal income taxes across the country and in every size market. Below are just a few examples of where cost segregation generates meaningful tax deductions. City: Philadelphia, PA Boston, MA Denver, CO Memphis, TN San Francisco, CA Tampa, FL Hartford, CT Atlanta, GA Miami, FL Orlando, FL Allentown, PA Harrisburg, PA Lancaster, PA Greenville, SC McAllen, TX Tulsa, OK Charleston, SC Chattanooga, TN Palm Bay, FL Oxnard, CA Madison, WI St. Louis, MO Columbia, SC Lakeland, FL Youngstown, OH Knoxville, TN Detroit, MI Columbus, OH Des Moines, IA Cincinnati, OH Cost segregation produces tax deductions for virtually all property types. Property Type: Fast food restaurant Department store Auto dealer Convenience store Service center warehouse Self-storage Drugstore Land Multifamily Medical facility Almost every industry, including the following, can generate cost-efficient tax deductions by using cost segregation. Industry: Automotive parts distributors Frozen food manufacturing Apparel manufacturing Electrical component manufacturing Plastic and rubber products manufacturing Publishers Textile product mills Building supply dealers Wood product manufacturing Golf courses and country clubs O’Connor & Associates is a national provider of commercial property real estate consulting services including,tax reductions ,cost segregation ,tax deductions,market study,feasibility studies,property tax,market research,condemnation appraisal,gift tax,lease abstraction,casualty loss,Fort Bend Central Appraisal District,Tips and Tricks for Appealing Your Property Taxes in Harris,Harris county appraisal,Federal tax reduction. Patrick C. O'Connor http://www.harris-countyappraisaldistrict.com
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Patrick C. O'Connor www.poconnor.com Patrick C. O'Connor has been president of O'Connor & Associates since 1983 and is a recipient of the prestigious MAI designation from the Appraisal Institute. He is also a registered senior property tax consultant in the state of Texas and has written numerous articles in state and national publications on reducing property taxes. He continues to set the standard in direction and quality of our appraisal products, adding services ranging from busi
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