craig miller is a certified public accountant, a certified government financial manager, and client manager for duffy+duffy.<\/figcaption><\/figure>\nsound too good to be true? there is a catch, actually two. this is not a tax credit or deduction, it is a tax deferral. additional depreciation deductions used now will not be available later, meaning that taxes saved now will be repaid in later years. that\u2019s bad news. the good news is that those taxes paid later will be in tomorrow\u2019s less valuable dollars. who would not want to get a dollar now and repay it in 20, 30, 40 years? your clients get to keep the tax savings and use it in their business or to expand their holdings, or however you advise. think of it as an interest-free loan from uncle sam.<\/p>\n
the second catch is that there is a fee to hire qualified cost segregation professionals to apportion the building costs into shorter life depreciation categories, but the fees are usually modest in relation to the benefits obtained. when conducted properly, the npv savings from a cost segregation study will range from 4% to 8% of the building cost. that\u2019s $40,000 to $80,000 for each $1 million in building cost and\/or leasehold improvement cost. the cash flow, in the form of deferred tax, is usually 1 \u00bd times that.<\/p>\n
this opportunity came about as a result of a 1997 tax court case. the hospital corporation of america thought that they could claim shorter depreciable lives for some of the parts of their medical buildings and did so on their tax returns. the irs disagreed citing the 39-year straight-line method specified in the tax code. unfortunately for the irs, the tax court agreed to the faster write-offs citing prior case law and irs rulings dating back to the 1960\u2019s and 70\u2019s. in 1999 the irs acquiesced to the tax court findings but stated that \u201c\u2026the use of cost segregation studies must be specifically applied by the taxpayer.\u201d the irs has subsequently issued audit guides and bulletins dictating what they expect to see as documentation of the segregated costs. the court ruling and irs pronouncements have opened up an entire industry of cost segregation professionals to conduct the studies necessary to separate the building cost into the proper categories and comply with the irs requirements. the firms that conduct these studies are typically staffed by cpa\u2019s and construction engineers. knowledge of the tax law and the construction process are cited by the irs as prerequisites for preparing the studies. fees for the studies are usually modest compared to the benefit obtained.<\/p>\n
in order to take advantage of the tax deferrals there must be taxes to be deferred. if your client has taxable income from the property, within the business, or from other owned properties usually the tax on that income may be able to be offset by the increased deductions. if there are tax losses from the property or in the business and no tax is being paid there is no point in having a study preformed. other conditions, such as the contemplated sale of the building or exposure to the alternative minimum tax (amt) could reduce the benefit of a study. commercial buildings costing over $300,000 and currently being depreciated over 27.5 or 39 years on the straight-line basis are good candidates. to be effective, cost segregation usually takes considerable tax planning to be effective and the cpa is in the best position to offer advice on whether or not it is a good fit.<\/p>\n
while recently constructed buildings are attractive candidates for cost segregation, the technique can be applied to any building constructed or purchased since 1987. by conducting a \u201clook-back\u201d study, any depreciation deductions that could have been taken in the past can be can be taken now, often resulting in very large deductions in the current tax year. amended returns are not required to claim the deductions. if a \u201cstep-up\u201d in tax basis occurs, usually when a property is inherited, the new basis can be allocated and provide accelerated depreciation deductions to the heirs.<\/p>\n
there are a lot of benefits valuable through cost segregation and very few negatives. it can defer tens-of-thousands of dollars in taxes that can be put to better use than paying tax. if the tax situation is right cost segregation can be truly pennies from heaven.<\/p>\n","protected":false},"excerpt":{"rendered":"
too good to be true? by dennis duffy and craig miller duffy + duffy cost segregation services it\u2019s not very often that a tax opportunity comes along that puts money in your client\u2019s pocket instead of the other way around. … continued<\/a><\/p>\n","protected":false},"author":17,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"_relevanssi_hide_post":"","_relevanssi_hide_content":"","_relevanssi_pin_for_all":"","_relevanssi_pin_keywords":"","_relevanssi_unpin_keywords":"","_relevanssi_related_keywords":"","_relevanssi_related_include_ids":"","_relevanssi_related_exclude_ids":"","_relevanssi_related_no_append":"","_relevanssi_related_not_related":"","_relevanssi_related_posts":"","_relevanssi_noindex_reason":"","footnotes":""},"categories":[1905,5,1906],"tags":[27],"class_list":["post-7566","post","type-post","status-publish","format-standard","hentry","category-clients-and-service","category-outlook","category-tax-practice","tag-tax"],"acf":[],"yoast_head":"\nthe case for cost seg: tax breaks for commercial buildings - 卡塔尔世界杯常规比赛时间<\/title>\n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n\t \n\t \n\t \n