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					GLOBAL Commercial Solutions
     Cost Segregation Overview
Cost Segregation
What Is It?

  How Does It Work?

    What’s Your Benefit?
 What is Cost Segregation?
Cost Segregation Is:
     The IRS approved method for accelerating building
     depreciation for Commercial and Residential Rental
     properties. It is a detailed process which includes
     identifying the building components that should be
     properly classified as tangible personal property or
     land improvements, rather than real property that is
     depreciated over 39 years (or 27.5 for Residential
     Rental).
The US Treasury Department States:
“Cost Segregation is a lucrative tax strategy that
  should be used in almost every major
  purchase of Commercial Real Estate.”


                  Wall Street Journal – June‚2003
Cost Segregation Defined:
 • A cost segregation study is an in-depth
   analysis of the cost incurred to build, acquire
   or renovate a real estate holding.

 • The primary goal is to identify all
   construction related costs that qualify for
   accelerated income tax depreciation.

 • A true engineering based cost segregation
   study will identify and assign costs to all
   building components including those in the
   39 year depreciation category.
Why Use Cost Segregation?
 • Taxes are one of the largest expenses for commercial
   property owners.
 • Significant federal income tax benefits can be derived
   from utilizing shorter recovery periods.
 • Engineering-based cost segregation studies allow
   commercial real estate owners to take what would
   otherwise be classified as 1250 property for
   depreciation purposes and reclassify it as more
   rapidly depreciating 1245 property.
 • This reclassification results in substantial cash flow
   benefits in both current and future years through
   substantially shorter depreciable tax lives and
   accelerated depreciation methods.
Standard Depreciation
• Traditionally, a building’s actual cost is divided
  between land and building.
      For example:
          – 20% to Land (which is Non
            Depreciable) and
          – 80% to Building

• The 80% allocated to the building is then
  typically depreciated using 39 year straight
  line depreciation.
     Accelerated Depreciation
The IRS Uses Three Primary Asset Classes:
        • Personal Property (1245) – Eligible for 5 or 7 year
          depreciation using double declining balance method
          (200%DB). Includes items such as carpeting, certain
          fixtures, equipment hookups, computer cabling and
          raised floors.

        • Land Improvements - Eligible for 15 year depreciation
          using 150% declining balance. Includes items such as
          sidewalks, fences, site utilities, landscaping and a
          portion of excavation.
        • Real Property (1250) - Structural components that
          relate to overall structure of a building. Includes parts of
          a building such as walls, ceilings, HVAC, roofs, floors and
          permanent coverings.
Typically, only 3% of a buildings
  cost is classified to reap the
      greatest tax benefit.
Assets such as furniture, fixtures, and equipment
   have properly been classified and claimed as
               “personal property”.

   The remainder of the building is assigned a
          depreciable life of 39 years.
   (27.5 Years for residential rental property)
Cost Segregation Breakdown
                                 After             Class
Before
                                                      S1245
                                 5 Years         Personal Property
Cost Seg                                             200%DB
                                                 Double Declining
                                7 Years           Balance Method

39 years*   Segregate
                                                Land Improvements
                                15 years             150% DB


                                                S1250 Real Property
                               39 years*           Straight Line


                        * 39 Years for Commercial Property and/or
                        27.5 Years for Residential Rental Property
Types of Components We Segregate
   and Reclassify In Our Studies:
     Communication Systems         Conduit / Wiring to Special
     Computer Data / Power          Systems
     Data Outlets                  Demountable Power
     Electrical Outlets             Systems
     Distribution Wiring           Specialty Gas /
     Distribution Panels            Compressed Air Systems
     High Voltage Switchgear       Millwork
     Emergency Power               Floor Coverings
     Supply / Exhaust Systems      Window Treatments
     Removable HVAC                Wall Coverings
      Systems                       Demountable Walls
     Specialized Fire              Decorative Lighting
      Protection                    Signage
     Specialized Air Filtration    Sidewalk & Curbing
     Humidity / Temp. Control      Parking Lots & Curbing
     Security Access & -           Site Utilities
      Monitoring Systems            Sewer & Drainage
     Audio / Visual Systems        Landscaping
     Communications                Site Lighting

  “Our engineers look beyond the obvious
  items and evaluate every single key
  component associated with a property.”
  Qualifications:
Any for-profit entity that:
       • Owns a commercial or residential rental
         property with a basis of $1,000,000 or
         higher.
       • Made leasehold improvements totaling
         $500,000 or higher.
       • Pays Federal Income Tax
       •
Properties That Qualify
 • Existing property acquired after 1986.
 • New Construction or Future
   Construction.
 • Existing buildings undergoing
   renovations or expansion.
 • Leasehold Improvements, both past
   and future.
 • Commercial Property about to be
   acquired.
         Service Highlights

We Provide Free Property Evaluations
   •   We provide a free Cost-Benefit Analysis for
       each and every property.
   •   In the analysis we will provide our flat fee
       to complete the study along with a
       conservative estimate of benefits.
   •   This provides the owner the ability to make
       an educated decision whether or not to go
       forward with the study based upon the
       anticipated return on investment.
        Service Highlights

Our Studies Are Different
   • Our studies are conducted using a Unique
     Detailed Engineering Approach. Our
     Engineers visit the site and assign both a
     depreciable life and a project cost to every
     asset in a property. All short life items, as
     well as all 39 year assets are accounted for.
     Our study allows the property owner to
     realize the greatest tax benefit from a front
     loaded depreciation schedule while keeping
     within all guidelines required by the IRS.
            Service Highlights
Retirement of Assets
   Most providers of cost segregation do not provide
    the detail necessary to retire long life s1250 – “Real
    Property”. This often results in a property having
    “Ghost” assets on the depreciation schedule.
   Our studies allow the property owner to write off
    long life assets in the years following the study.
  – For example: If a roof needs to be replaced ten years
    after the property is placed in service, the owner can
    write off the remaining depreciable balance of that
    roof all in one year.
    This can amount to hundreds of thousands of dollars
    in tax benefits.
       Service Highlights
We Will Support Our Findings
     Our comprehensive engineering studies
      maximize the benefit for our clients and
      contain all of the supporting documentation
      necessary to support our findings. Our final
      reports stand on their own.
     In the event of an IRS Audit and/or if any
      questions or raised, we will defend our
      findings at no additional charge.
Who would you rather pay?

               OR

     IRS            Yourself
Why provide the Federal Government with an
Interest Free Loan for the remaining 39 years
of your buildings’ depreciable life?

               Contact Us Today
      for your Free Cost-Benefit Analysis!

				
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posted:9/19/2011
language:English
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