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Tax reduction and tax deferral are the primary benefits of obtaining a study of segregation costs. Income taxes are a significant burden for most real estate investors. Tax deductions help with this burden. While some level of taxation is necessary, it is both inappropriate and imprudent to pay more than its fair share.

Income tax is based on net income or taxable income. The basic formula for calculating the taxable income is income less expenses (tax deductions). Expenses can include direct payments to others (labor, rent, supplies, etc.) and net non-cash. Deductions primary non-cash depreciation and are depreciated. Reduction of tax (tax cuts) are a direct result of increasing tax deductions.

The deduction for estate tax benefits owners gain the segregation of costs is a higher level of depreciation. This non-cash tax deduction reduces taxable income, tax on income. For example, if the amount of depreciation increased by $ 100,000 (after a study of segregation costs), taxable income would decrease by $ 100,000, and the owner is reduced to $ 35,000 in taxes ( based on 35% tax rate).

The majority of property owners depreciate real estate based on splitting the cost base from the land and improvements. The owner or preparer tax estimates typically part of the land and the balance of attributes to improve durability. improving long-term depreciate over 27.5 years for residential rental property and 39 years for commercial property

Although this simplistic method is legal, it is cheating the owner's real estate tax deductions. Study identifies segregation of costs up to 130 short-lived elements. (Segregation of depreciation is different from the components, which was available until early, 1908. However, the result of both is to increase depreciation and tax deductions during the first year of ownership .) These short-lived elements typically include 20-50% of the cost base and improvements are depreciated over 5 years (20.0% per year), 7 (14.29% per year) and 15 ( 6.67% per year).

Depreciation does alter the character of income from ordinary income to capital gains. While the maximum rate of tax for ordinary income is 35%, the maximum rate on capital gains is 15% (less than half the ordinary income tax). This affects substantial reduction of income tax.

The increase in depreciation also affects deferral of taxes on income. Instead of paying taxes (the tax rate on ordinary income) as income is earned in the year, taxes are paid (at the rate of capital gains) in the year the property is sold. segregation of costs actually generates an interest free loan (until the property is sold) and reduces the tax rate (from 35% to 15%).

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Cost segregation produces tax deductions and reduces federal income taxes across the country and in all size markets. Here are some examples where cost segregation generates meaningful tax deductions.

City:

• Miami, FL




• Bridgeport, CT




• Washington, DC




• San Francisco, CA




• Atlanta, GA




• Dallas / Ft Worth, TX




• New Orleans, LA




• New York, NY




• Baltimore, MD




• Hartford, CT




• Indianapolis, IN




• Wichita, KS



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