Property owners who utilize Peter J. Burns III’s innovative process for doing “cost segregation” at tax time are eligible for big-time savings. It’s estimated there are 91 million buildings qualified for a cost segregation study. That means that as much as $500 billion of potential savings are on the table, according to Peter J. Burns III.
Obviously, cost segregation—which is a little-know process that’s guided by Internal Revenue Service guidelines—is underutilized. Is it for you? Can you save money by doing a cost segregation study? Let’s look at the definition of the process and delve into how it works.
What is Cost Segregation?
Under United States tax laws and accounting rules, cost segregation is the process of identifying personal property assets that are grouped with real property assets, and separating out personal assets for tax reporting purposes.
In other words, cost segregation is a tax savings tool that allows businesses and individuals to increase cash flow by accelerating deductions and deferring federal and state income taxes.
What is a Cost Segregation Study?
To initiate a cost segregation study, a certified third-party identifies, values and separates depreciable personal property. A certified analyst will appraise non-structural items (things like carpet, wall coverings, etc.) and adjust the scheduled depreciation.
The result? Acceleration of depreciation can lead to huge tax savings in the early years of the life cycle of a real estate property. This allows a property owner to catch up on savings that result from the depreciation adjustment.
It’s relatively simple. Under standard, straight-line depreciation, the default tax life on a commercial building is 39 years. Cost segregation professionals seek to identify the multiple pieces of personal property that can be placed on shorter—five-, seven- or 15-year—depreciation terms.
According to studies commissioned by Peter J. Burns III, doing a third-party-certified study for cost segregation typically results in 6 percent of the value of a building coming back in tax benefits. In one study, an $8-million rental villa returned $625,000 to the owner after cost segregation.
When Should A Cost Seg Study Be Done?
Real estate that qualifies includes properties like large homes, villas or hotels that you anticipate holding for at least a few years and were purchased, constructed or remodeled after Jan. 1, 1987.
It’s best to have a study completed the year the building or improvements are placed in service. However, IRS Revenue Procedures allow taxpayers to “catch up” on the depreciation that was not claimed when the property was placed in service, without amending prior years’ tax returns.
In addition, the IRS allows for the “catch up” period all in the first year—rather than over four years, when the Revenue Procedure 99-49 was first introduced.
Should You Use an Expert to Conduct a Study?
Absolutely. A cost segregation study must be performed by a trained Cost Segregation specialist – not a Certified Public Accountant.
At HL Cost Seg, our certified cost segregation study professionals have the expertise in tax law, cases, and rulings on cost segregation. Other specialties include real estate development and construction experience—to maximize your tax savings. Our company will work with your advisors to help you take advantage of this extremely viable tax savings solution.
Peter J. Burns III’s HL Cost Seg is a subsidiary of HL Villas and operates in conjunction with the financing arm of the business. The company has partnered with the leading cost segregation company in the industry, Cost Segregation Initiatives, LLC.
Some villa and hotel owners are eligible for a free Cost Segregation Study!
Cost Segregation Initiatives, LLC performs just one function…cost segregation. CPAs are on staff but this is not a CPA firm. (Note: Unlike some competitors, the company is not out to poach business from CPAs. We’ll work in conjunction with CPAs, not against them.)
Cost Segregation Initiatives, LLC was established to provide comprehensive, professional cost segregation studies to our clients. The team has more than 15 years of cost segregation experience and more than 35 years of tax preparation and planning experience.
Drop us a line at this link to find out how cost segregation can save you money at tax time!
Peter J. Burns III