Tax Reductions Available Several Years After Selling a Property
Tax reduction and tax deferral are the primary benefits of obtaining a cost segregation study. It is still possible to obtain the tax reduction benefit several years after a property has been sold. At that point, it is no longer possible to obtain the tax deferral benefit.
Cost segregation effects tax reduction by increasing the tax deduction called depreciation. Depreciation is a non-cash expense for IRS reporting purposes. Tax reductions occur by shifting income, which would have been taxed at the “ordinary income rate” (typically 35% for federal income taxes) to the “capital gains rate” (currently a maximum of 15%). By this action, a tax reduction of as much as 20% is possible.
You can receive a tax reduction benefit for the year you sold a property even two or three years after the sale by obtaining a cost segregation study and filing an amended tax return. Consider the following example:
Brian sold an apartment for $5 million in 2004. His management company had net profit (ordinary income) of $600,000 in 2004. By obtaining a cost segregation study, Brian can increase 2004 depreciation by $400,000. (This is done in part by using “catch-up” depreciation). Increasing depreciation by $400,000 will reduce ordinary income (taxed at 35%) by $400,000 and increase capital gain income (taxed at 15%) by $400,000).
Hence, Brian can retroactively obtain a tax reduction on his 2004 income taxes by $80,000 ($400,000 X (35% - 15%)) by obtaining a cost segregation study and filing an amended tax return.
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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:
- Washington, DC
- Hartford, CT
- New York, NY
- Los Angeles, CA
- Philadelphia, PA
- Baltimore, MD
- Houston, TX
- New Orleans, LA
- Tampa, FL
- Miami, FL
- Albuquerque, NM
- Austin, TX
- Sarasota, FL
- Kansas City, MO
- Louisville, KY
- Little Rock, AR
- Baton Rouge, LA
- El Paso, TX
- San Diego, CA
- Boise, ID
- Grand Rapids, MI
- Oklahoma City, OK
- Toledo, OH
- Detroit, MI
- Charleston, SC
- St. Louis, MO
- Worcester, MA
- Palm Bay, FL
- Durham, NC
- San Jose, CA
Cost segregation produces tax deductions for virtually all property types.
Property Type:
- Bank
- Lodging
- School
- Country club
- Community shopping center
- Hospital
- Amusement park
- Power center
- Mini-warehouse
- Bowling alley
Almost every industry, including the following, can generate cost-efficient tax deductions by using cost segregation.
Industry:
- Nondurable good wholesalers
- Textile product mills
- Apparrel manufacturing
- Durable good wholesalers
- Food and beverage stores
- Furniture stores
- Furniture manufacturing
- Frozen food manufacturing
- Chemical manufacturing
- Electronic and appliance stores
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