Real Estate Investors Benefit from Cost Segregation for Self-Storage
Real estate investors in the self-storage industry face many challenges. Locating an appropriate site, completing construction within budget, completing lease-up and collecting rent all offer material challenges. Self-storage owners also have to control operating expenses, as do all real estate investors. Property tax appeals can be an ordeal, particularly in states with high property taxes and aggressive assessors, such as Texas.
Self-storage real estate investors should consider a modest effort to limit the portion of their profits seized as income taxes. Cost segregation is an IRS-governed process to accurately depreciate real estate. Cost segregation tax benefits include tax reduction through a higher level of tax deductions termed depreciation. Depreciation is a non-cash expense designed partly to account for the physical waste which gradually occurs and partly is an incentive to invest in real estate.
Cost segregation increases depreciation by converting the typical simple depreciation schedule to a detailed schedule which includes up to 130 components. We are frequently asked Is cost segregation the same as component depreciation? While the net result is similar; i.e. higher levels of depreciation in the early years of ownership, the methodology is much different. Depreciation is a key non-cash income tax deduction. There is a direct relationship between increasing depreciation and tax reduction.
Cost segregation causes both income tax reduction and tax deferral. Income taxes are reduced because more income is taxed at the capital gains rate (up to 15%) instead of the ordinary income tax rate (up to 35%). Tax deferral occurs since more depreciation is recognized in the early years of ownership.
Some self-storage real estate investors have wondered if cost segregation is too good to be true. In other words, does the IRS consider it a tax shelter? The IRS reports it is a more accurate method to calculate depreciation. They have published a 100+ page report giving tax practitioners guidance.
Real estate investors in the self-storage industry work hard to earn a profit and should consider cost segregation to keep more of what they earn.
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:
- Tampa, FL
- Baltimore, MD
- Phoenix, AZ
- Bridgeport, CT
- Denver, CO
- New Orleans, LA
- Los Angeles, CA
- Philadelphia, PA
- Boston, MA
- Washington, DC
- Birmingham, AL
- Austin, TX
- Salt Lake City, UT
- Youngstown, OH
- Greenville, SC
- St. Louis, MO
- Ft. Lauderdale, FL
- Durham, NC
- Baton Rouge, LA
- New Haven, CT
- Detroit, MI
- Des Moines, IA
- Santa Rosa, CA
- Minneapolis-St. Paul, MN
- Cleveland, OH
- Buffalo, NY
- San Antonio, TX
- Harrisburg, PA
- Omaha, NE
- Jacksonville, TN
Cost segregation produces tax deductions for virtually all property types.
Property Type:
- School
- Mobile home park
- Community shopping center
- Warehouse
- Drugstore
- Vacant land
- Self-storage
- Tennis club
- Subsidized housing
- Power center
Almost every industry, including the following, can generate cost-efficient tax deductions by using cost segregation.
Industry:
- Beverage and tobacco product manufacturing
- Truck transportation
- Furniture stores
- Transportation equipment manufacturing
- Nondurable good wholesalers
- Arts, Entertainment, and Recreation
- Publishers
- Day care facilities
- Wood product manufacturing
- Food and beverage stores
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