While owners of income-producing property are the folks who benefit financially from Cost Segregation Studies, their CPAs and Tax Preparers can benefit as well. When a CPA/Tax Preparer recommends a Cost Segregation Study to a client who reaps a substantial tax refund, the CPAs/Tax Preparer looks like a Superhero!
I’ve talked to my own tax preparer about this; he invited me to speak to his staff about Cost Segregation Studies. Spent some time working up a concise slide presentation to add some visual interest to the presentation and realized that the points are very simple:
Tax Refund on Income-producing Properties
If you own income-producing property of any kind, you stand to earn some tax-savings on a Cost Segregation Study. This is interesting because it means that if you own, for instance, a single-family rental in Sacramento, CA, or an apartment complex in Yuba City, a rice processing facility in Marysville, a commercial welding shop in Redding, an office complex in San Rafael, a fish processing plant on the Bay, or a dairy farm out in Marin County, you could get a bonus tax refund through a Cost Segregation Study.
If you’re a Tax Preparer in the Northern California area whose clients own apartment complexes, manufacturing facilities, farm or ranching operations, food processing plants, or even a single-family rental home — well, here’s your chance to be a Superhero! Suggest they call NorCalValuation for a free cost benefit analysis. We can put together a no-obligation proposal with just 1 or 2 items of information:
- Depreciation Schedule for purchased property
- Contractor Cost Breakdown for new construction/tenent improvements/remodels
The no-obligation proposal we submit includes documentation suitable for review by a CPA/Tax Preparer:
- Estimated cost allocation of short life items
- Estimated tax savings
- Appraisal fee proposal
Short Life Items/Accelerated Depreciation
Cost Segregation Studies save taxes by segregating the parts of your building that depreciate more quickly than the facility as a whole. This involves some analysis to determine what is Personal Property as opposed to Real Property, and what are Land Improvements as opposed to Land. This determination allows the owner to claim increased deductions for Personal Property and Land Improvements in the early years of ownership. Accelerated depreciation of 15, 7, or 5 years rather than the 27.5 years of Residential property or the longer life of 39 years for Commercial/Industrial properties.
Indicators for Cost Segregation Studies
A good time to recommend a Cost Segregation Study to a client is at any of these milestones in tax status changes; remember, however, that Retroactive Cost Segregation Studies can be done all the way back to 1987 and prior returns do not need to be amended!
- Purchase Analysis
- Acquisition
- Inheritance
- Remodel/Tenant Improvements
CPAs and Tax Preparers across the nation, in the past decades, have helped save their clients uncountable tax dollars by recommending Cost Segregation Studies. Recently, these studies have become affordable for almost everyone, so let your clients know. They’ll be glad you did!
Next post, I’ll discuss Agriculture Cost Segregation Studies, in particular the intricate process of depreciating dams, ponds and terraces, an especially interesting subject for farmers and rice ranchers, and one that took me on a winding research trail through IRS publications.
Jack Young
NorCalValuation
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