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| IRS Position on Cost Segregation When real estate investors and tax practitioners learn about the income tax deductions and tax reductions resulting from cost segregation, they are sometimes skeptical; is it a tax shelter or tax scheme? The answer is categorically "No" to both questions. The IRS published the Audit Techniques Guide (ATG) describing cost segregation as the proper methodology for depreciating improved real estate. They report cost segregation is a more accurate method of depreciation since it establishes a recovery schedule based on the appropriate life for the component. Cost segregation involves separating components of real estate (such as carpet, vinyl tile, paving, sidewalks and landscaping) that have a shorter economic life and shorter period of cost recovery time. Through the ATG, the IRS has specifically defined which components qualify for short life depreciation. It is a safe harbor for real estate owners who consistently depreciate real estate in accordance with its guidelines. While cost segregation is simple in concept, its application requires thorough knowledge and scrutiny. For example, why is a roof classified as long-life property (39 years for commercial property) while concrete paving is deemed short-life property (15-year property)? Most owners would agree the paving would outlive the roof. The puzzling designations for which components depreciate over a short-life derives partially from the impact of previous investment tax credit guidelines, which heavily influenced the rules. In addition, court decisions and subsequent IRS guidelines also influenced the rules, which are not intuitive. However, for most components, rules have been clearly articulated to define their depreciable life. These rules and the guidelines for methodology in the ATG clearly define the IRS's position regarding cost segregation. Prepare for the Year End! Get a FREE estimate of tax savings on your property  Please send me periodic real estate information. O'Connor & Associates -- Your Key to Real Estate Value Corporate Office: 2200 North Loop W., Suite 200 Houston, TX 77018 1-800-856-7325 Dallas * Houston * Los Angeles * Newport Beach If you would like to be removed from this list and receive no future real estate information, click here to unsubscribe. |
 Cost Segregation Benefits
About O'Connor & Associates O'Connor & Associates is the largest independent real estate research and support services firm in the Southwest, conducting business nationwide. Our professional staff in Houston, Dallas, Los Angeles and Newport Beach is available to help you with your business and real estate valuation matters, including cost segregation studies, business and residential appraisals, business valuations and judicial appeals. Hire O'Connor & Associates to save thousands in federal and state taxes. Visit us at www.poconnor.com. |
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