Understanding the legal background and rationale for property taxpayer cost allocation is crucial for comprehending cost segregation studies and their intricacies. Based on the IRS Cost Segregation Audit Technique Guide, O’Connor will educate you about asset clarity, depreciation changes, and how it can get you ready for a cost segregation investigation.

Accelerated Cost Recovery System: 1981

In 1981, Congress put into place the Accelerated Cost Recovery System (ACRS) – a cost recovery method – to simplify depreciation rules to allow greater deductions over shorter periods of time. By adding a statutory percentage to the cost of the recovery property, ACRS permitted depreciation deductions over a defined recovery period. A statutory percentage or tax rate is the rate mandated by law on taxable income that falls within a given tax bracket. With the introduction of ACRS came many changes, for example the removal of salvage value and the concept of useful life. Under ACRS, cost recovery of assets was faster and provided a total of six recovery periods. Between 1981 and 1886 many properties during this time were eligible for ACRS. Other changes that came from ACRS was preventing component depreciation as a method for calculating depreciation for buildings.

According to ACRS, starting on the later of the date the building is brought into service or the component is placed into service, the depreciation deduction for any building component must be calculated in the same way as the deduction permitted for the structure. This new system brought along several changes to depreciation; however, it was beneficial for many taxpayers since it allowed for greater deductions overall.

Modified Accelerated Cost Recovery System: 1986

In 1986, ACRS was modified by congress and was later renamed Modified Accelerated Cost Recovery System (MACRS). With the modification came new changes and improvements to the system. For example, MACRS repealed ACRS § 168(f)(1), which related specifically to components of § 1250 class property. MACRS was a cost recovery method that was based on the applicable depreciation method, recovery period, and convention outlined in § 168.

The applicable depreciation method is the most straightforward and reliable approach for calculating depreciation, because it makes sense when working with an item whose value declines consistently over time at the same pace.

With the modification of ACRS, MACRS provided two depreciation systems:

1. General Depreciation System (GDS) – a method used to compute personal property’s depreciation. GDS allowed for the use of tax depreciation known as the declining – balance – method.

2. Alternative Depreciation System (ADS) – a method of calculating the depreciation of certain types of assets in certain conditions. The ADS technique lowers the annual depreciation expenditure reported by using the straight-line approach to compute depreciation over a longer time period than the GDS method.

In order to calculate depreciation deductions for later years, MACRS also needed the necessary basis modifications. Additionally, it amended other ACRS regulations, such as property classifications. For structures and structural elements, the recovery time increased significantly under MACRS. The applicable depreciation method, convention, and recovery time were impacted by the property’s MACRS classification in addition to the new depreciation methods. Each item of property depreciated under MACRS is assigned to a property class. Class lives for MACRS are outlined in Rev. Proc. 87-56, 1987-2 C. B. 674. A property class establishes the item’s recovery period. Statutes or class lives are used to calculate the applicable recovery periods for MACRS.

Rev. Proc. 87-56, 1987-2 C. B. 674 established two broad categories of depreciable assets:

1. Asset classes 00.11 through 00.4 consist of specific assets used in all business activities.

2. Asset classes 01.1 through 80.0 consist of assets used in specific business activities.

By the end of 1986, MACRS continued preventing component depreciation as a method for calculating depreciation for buildings. MACRS enacted § 168(i)(6), improvements made to real property are depreciated using the same recovery period applicable to the underlying property, assuming the underlying property was placed in service at the same time the improvements were made. Improvements to § 1245 property and §1250 property. In the next blog, O’Connor will discuss the terms “§ 1245 property” and “§1250 property” and the meanings given by §1245(a)(3) and §1250(c).

Since the early 1930’s, depreciation regulations have encountered many modifications and changes so as to benefit taxpayers. Depreciation helps taxpayers increase cash flow by reducing reportable income. A good cost segregation study is an excellent tool for property owners to maximize depreciation and improve cash flow. The IRS Cost Segregation Audit Technique Guide, provides up-to-date information and resources for a quality study.

How Can O’Connor Help You

As a taxpayer, you will learn more about cost segregation and its operation from O’Connor’s blog series, which is based on the IRS Cost Segregation Guide. Taxpayers will have a better understanding of asset categorization, cost recovery, and depreciation methods by studying the history of depreciation. In upcoming blogs, O’Connor will discuss how to differentiate between §1245 and §1250 property tests and how cost segregation affects building systems. Work with O’Connor’s cost segregation experts to assist you in conducting a successful cost segregation study for your real estate.

The post Cost Recovery Systems that Changed Depreciation Today  appeared first on O'Connor Cost Segregation.

As currently outlined in the Tax Cuts and Job Act of 2017, bonus depreciation is on track to sunset by 2027. Weigh in with your opinion: Do you think the new administration will enact changes to bonus depreciation?

As of January 2025, bonus depreciation, the federal tax incentive that provides for businesses to immediately deduct a large percentage of the cost of qualified property continues a phase-out according to the following schedule:

• 2023: 80%
• 2024: 60%
• 2025: 40%
• 2026: 20%
• 2027 and later: 0%

Currently, a business can deduct 60% of the property’s cost upfront for property placed in service in 2024. The outstanding balance will be depreciated over the asset’s normal recovery period.

Without a crystal ball, we don’t know how future legislation will unfold, however, President Trump proposed to reinstate and make permanent 100% bonus depreciation during his 2024 campaign. With the potential return of 100% bonus depreciation, businesses would again be able to immediately deduct the complete cost of qualified property, bolstering investment and economic growth.

In addition, policymakers have suggested that the restoration of 100% bonus depreciation could be a priority in the upcoming legislative agenda. This move is anticipated to benefit sectors such as manufacturing and agriculture by reducing tax liabilities and promoting capital investment.

While all of this indicates a strong inclination towards reinstating full bonus depreciation, the implementation will depend on legislative processes and negotiations. Businesses should monitor these developments closely and consult with tax professionals to understand the potential implications for their operations and investment strategies.

O’Connor’s cost segregation team has the experience and background to advise commercial property owners on the latest developments in bonus depreciation. Our expertise includes:

• Navigating Legislative Changes: Staying updated on tax law changes, such as the phase-out schedule for bonus depreciation or potential legislative reversals.
• Maximizing Tax Benefits: Identifying assets eligible for bonus depreciation and ensuring that property owners take full advantage of current tax incentives.
• Tailored Consultations: Offering guidance on how changes in bonus depreciation may impact individual property investments and overall tax strategy.
• Timely Reporting: Providing comprehensive cost segregation studies that align with the latest federal tax regulations.

If you’re a commercial property owner, O’Connor can provide you customized insights into bonus depreciation rules and how to optimize your tax savings. We provide at no charge and with no obligation, a preliminary analysis that will estimate approximate savings for your assets. The analysis includes a firm cost quote, allowing you to project a payback ratio of savings versus study cost before you commit. Our state-licensed appraisers perform cost segregation studies servicing all 50 states as well as international clients. We’ve completed over 15,000 reports generating hundreds of millions of dollars in federal tax savings for our clients. Our team of cost segregation specialists is made up of experienced, trustworthy professionals providing:

• Outstanding Customer Service
• Quality Technical Work
• Undivided Cost segregation Focus

About O’Connor:
A market leader in real estate services since 1974, O’Connor has over 50 years of experience. Our cost segregation team provide studies for commercial clients calculating costs of property components and segregating each to the correct depreciation lives, generating hundreds of millions of dollars in federal income tax savings. Give us a call at 1-877-375-4291 to discuss your property.

The post O’Connor’s Experts Help Commercial Property Owners Stay Ahead of Bonus Depreciation Savings Tax Changes appeared first on O'Connor Cost Segregation.

HOW DOES A COST SEGREGATION STUDY WORK?

A commercial real estate asset is a single entity made up of its various components, both interior and exterior to the asset itself. On average, 20% to 40% of those interior and exterior components fall under tax categories which may be written off much quicker than the building structure itself. A CSS dissects the property, determining the components that are eligible to be depreciated more quickly (i.e. 5, 7 and/or 15 years), as well as those that should be depreciated long-term (over either 27 ½ or 39 years depending upon asset type). The study allows you to accelerate depreciation deductions, thus reducing taxes and increasing cash flow. Due to enhancements to certain depreciation-related breaks under the Tax Cuts and Jobs Act (TCJA), the potential benefits are now even greater thanks to 100% Bonus Depreciation.

WHEN SHOULD A CSS BE CONDUCTED?

Many investors are a bit confused as to when to undertake a cost segregation study. Owners that acquire, construct or substantially improve a building, or did so within the previous year, should consider a cost segregation study. Additionally, if you are just learning about cost segregation, note that you have not necessarily missed out on an opportunity. The IRS allows us to perform “Look Back” studies on assets that you have acquired or constructed in previous years. Though Look Back studies are available, the best time to do a cost segregation study for new owners is during the year a building is constructed, remodeled or purchased, and BEFORE federal income taxes are filed for the ownership entity. This avoids the need for special form submission (form 3115), helping to limit out-of-pocket expenses.

To learn more about the cost segregation study, connect with us at Expert Cost Segregation.

The post When is the right time to do cost segregation study? appeared first on O'Connor Cost Segregation.

Real estate investors benefit from income tax laws not available to investors for most other asset classes. The U.S. Congress has provided generous income tax benefits for both commercial and single-family owners. Purchasers of stocks, bonds and gold cannot depreciate their cost basis. However, real estate investors are able to depreciate a substantial portion of the cost basis of properties they purchase to reduce their income taxes. Depreciation is important because it: 1) is a non-cash expense, 2) converts ordinary income into capital gains income and 3) defers the payment of income taxes. Depreciation alters the character of income from ordinary income to capital gains income for most investors. Since the maximum income tax rate for ordinary income is 35% and the maximum income tax rate for capital gains income is 15%, this reduces the total amount of income taxes by over 50%. Depreciation defers payment of income taxes from the year in which it is earned until the year when the property is sold. Investors may further defer the recognition of gain/income by utilizing a 1031 exchange.

Cost segregation is a specialized service used by many real estate investors to enhance the benefits of depreciation. Cost segregation allows owners to increase the amount of depreciation by 50% to 100% during the first five to seven years of ownership. Cost segregation increases the level of depreciation by identifying up to 130 portions of the building which qualify for short-life depreciation. Short-life items can be depreciated over 5, 7 or 15 years. Buildings are depreciated over 27.5 years (rental residential real estate) or 39 years (commercial property). Cost segregation is financially feasible for real estate with a cost basis of at least $500,000 (for the improvements).

A casualty loss for real estate investment property could include fire, flood, hurricane, tornado, or mudslide. Real estate owners incur both financial and emotional distress following this type of casualty. There’s also a significant amount of work involved to coordinate with the insurance adjuster, tenants, contractors, vendors and lender. Even if the owner has complete insurance for building repairs and business interruption, a casualty loss deduction can legitimately be taken.

Casualty losses provide the opportunity to depreciate a large portion of the cost basis of real estate. The basis for calculating a casualty loss is the value of the property immediately before the casualty versus the value of the property immediately after the casualty plus insurance proceeds.

Consider the following example: a 200-unit apartment complex in Beaumont Texas was flooded with 3 feet of water on the first of two stories. The owner has casualty insurance expected to cover 100% of the cost to recover repair the property. He also has business interruption insurance to cover lost income while construction occurs and the property is leased. The initial reaction in reviewing this situation may be there is no casualty loss since the physical repairs and lost rents are covered. However, the market value of the property immediately after the casualty is substantially less than the market value of the property before the casualty. It is highly unlikely someone would purchase the property and agree to undertake the work required to negotiate with the insurance company, contractors, tenants, vendors and the lender without expecting a profit for their work. The magnitude of the casualty loss would have been much larger if the owner did not have business interruption insurance. In either case, a real estate investment group seeking to purchase the property immediately after the casualty would likely require an appropriate return for their capital and an entrepreneurial profit for the effort to renovate and lease the property.

Real estate investors use depreciation to reduce federal income taxes. They can further reduce federal income taxes by using cost segregation to increase the level of depreciation by 50 to 100% during the early years of ownership. Those suffering a casualty loss can often take a large deduction as a legitimate casualty loss.

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:

• Houston, TX
• Dallas/Ft. Worth, TX
• Boston, MA
• Baltimore, MD
• Las Vegas, NV
• Bridgeport, CT
• Hartford, CT
• Phoenix, AZ
• Washington, DC
• Los Angeles, CA
• Santa Rosa, CA
• Little Rock, AR
• Springfield, MA
• Minneapolis-St. Paul, MN
• Akron, OH
• Stockton, CA
• Bakersfield, CA
• Portland, OR
• Durham, NC
• Columbus, OH
• Colorado Springs, CO
• Charleston, SC
• Oklahoma City, OK
• Albuquerque, NM
• Oxnard, CA
• El Paso, TX
• St. Louis, MO
• Rochester, NY
• Providence, RI
• Milwaukee, WI

Cost segregation produces tax deductions for virtually all property types.

Property Type:

• Self-storage
• Amusement park
• Truck terminal
• Student housing
• Truck stop
• Racket club
• Multifamily
• Regional mall
• Discount store
• Single-tenant retail

Almost every industry, including the following, can generate cost-efficient tax deductions by using cost segregation.

Industry:

• Furniture manufacturing
• Beverage and tobacco product manufacturing
• Machinery manufacturing
• Food manufacturing
• Fabricated metal products
• Transportation equipment manufacturing
• Leather product manufacturing
• Day care facilities
• Arts, Entertainment, and Recreation
• Paper manufacturing

The post Tips to Reduce Income Tax for Real Estate Owners appeared first on O'Connor Cost Segregation.

If the current owner paid for the tenant improvements, the remaining cost basis is simple to calculate in an abandonment study. However, if a prior owner paid for the tenant improvements, it is unlikely cost data is available to the current owner. Further, even if cost is available to the current owner, that cost is not necessarily the current owner’s initial or undepreciated cost basis. (For an abandonment study, it is not relevant whether the current owner paid for the tenant improvements. If the prior owner or even the tenant paid for the tenant improvements, and the owner did not expect the tenant to be leaving at the time of acquisition, an abandonment study identifies the tenant improvements as a portion of the assets purchased.) Tax help can originate from unexpected sources.

By obtaining an abandonment study, the current owner can determine the undepreciated cost basis for the tenant improvements which are being abandoned. This abandonment study will identify the replacement costs of the assets, extract an appropriate cost basis for the improvements being abandoned from the current owner’s purchase price and calculate a depreciated cost basis which may be deducted from the tenant improvements. Examples of tenant improvements often identified in abandonment studies which are unlikely to benefit a subsequent tenant include:

• 20,000 square foot bank in an area which has an excessive number of banks with an average of 3,000 square feet;
• 5000 square feet of space for one physician
• 50,000 square feet of space mostly apportioned to very small patient rooms for health insurance physicals;
• another format or layout which is atypical.

Let’s consider an example:

Stan Smith purchased a 100,000 square-foot office building for $10 million in 2000. In 2004, the XYZ Company which leased 40,000 square feet of space filed for bankruptcy and vacated the space. The prior owner had spent $1 million for tenant improvements. An abandonment study analysis concludes the appropriate cost basis for the new owner is $800,000. The new owner has been depreciating all the improvements over 39 years. An abandonment study identifies the undepreciated cost basis for the tenant improvements for the XYZ Company at $717,949 ($800,000 x 35/39). The owner can deduct this amount when he realizes the improvements have no value or when the improvements are demolished.

Depreciation of tenant improvements is a difficult process to execute effectively. Accurately depreciating tenant improvements can substantially reduce income tax liability and increase both cash flow and total investment return.

O’Connor & Associate’s Federal Tax Reduction department is a national leader in the area of abandonment studies and cost segregation. Our team of advisers and full-time appraisers dedicated to abandonment studies and cost segregation assignments have counseled clients and prepared cost segregation reports for thousands of properties. O’Connor & Associates is the largest independent appraisal firm in the southwestern US and has over 50 full-time staff members engaged in abandonment studies, valuation and market study assignments. Their expertise includes valuing commercial and single-family real estate, business personal property, business enterprise value, purchase price allocation for businesses, valuation for property tax assignments, partial interest valuation, estate tax valuation, expert witness testimony and valuation for condemnation. They have performed over 20,000 appraisals since 1988.

The post Abandonment Study Yields Tax Reduction appeared first on O'Connor Cost Segregation.

By ignoring generous IRS guidelines when establishing depreciation schedules, over 90% of real estate investors are unintentionally overpaying federal income taxes. In addition, they are paying federal income taxes earlier than necessary, typically years or decades earlier than necessary. Depreciation, one of the key tax deductions, is understated by not carefully compiling depreciation schedules. Cost segregation is a specialized skill which helps real estate owners increase depreciation. Although cost seg affects meaningful federal income tax reduction, it is not a tax shelter; it is guided by detailed IRS regulations.

Although these IRS guidelines are relatively new, they provide substantial benefits. Since this is a relatively new issue, many accountants have not integrated the new IRS depreciation guidelines into their practice. Savings for real estate investors are meaningful- exceeding $50,000 to $1,000,000 in the first year. Cost segregation converts income taxed at 35% (ordinary income) to income taxed at 15% (capital gains). Cost segregation also defers payment of income taxes, often for 5 to 10 years.

Effects of Higher Depreciation

Most real estate investors do not understand the benefits of increasing real estate depreciation. They often ask, “doesn’t increasing my depreciation just mean that I will be shifting taxes from now until when I sell the property?”

This is a popular misconception and the answer is a resounding “no”. There are two benefits of increasing depreciation:

1. Converting ordinary income into capital gains income
2. Deferring income until a gain on the sale of the property is realized.

The conversion of ordinary income into capital gains income has to do with the technical nature of the allocation of the gain on the sale. Many, if not most, accountants initially believe it is simply a timing issue. However, when the mechanics of recognizing gain on sale are discussed, accountants quickly realize increasing depreciation leads to paying taxes at the capital gains rate as opposed to the ordinary income rate.

Correcting a depreciation schedule makes a difference if you recently sold a property since the additional depreciation will be taxed at the capital gains rate instead of the ordinary income rate. For example, assume an investor sold a property in late 2005, does a cost seg study, and increases depreciation by $100,000. The net result is the ordinary income taxes will be reduced by $35,000 ($100,000 x 35%) and the capital gains taxes will be increased by $15,000 ($100,000 x 15%). This nets the owner $20,000 in federal tax savings by simply correcting an error in the depreciation schedule after the property has already been sold.

When told it is possible to increase depreciation and affect federal income tax reduction, most real estate investors ask, “doesn’t my accountant take care of this for me?” Since depreciation is a significant source of tax deductions for commercial real estate investors, it seems intuitive that tax preparers would carefully examine all options.

Our experience, after reviewing thousands of depreciation schedules for real estate, is that less than 5% of depreciation schedules have been properly established. Most real estate investors have a good relationship with their accountant and believe, as a matter of faith, that their accountant is doing everything possible to minimize their taxes. Unfortunately, many accountants have not focused time or attention on this issue for several reasons. Some accountants are aware of cost segregation as an option to increase depreciation and reduce federal taxes but believe it is very expensive (at least $10,000 per property) and is financially feasible only for large properties (typically over $10 million). Many of the providers started out either as big four firms or big four spin-offs who charged between $10,000 and $50,000 per property. Many of these providers were not interested in properties with a cost basis under $10 million and only did cost segregation for newly built properties. Other accountants have not focused on the topic.

Cost segregation clearly makes sense for properties with an improvement basis of at least $500,000. In many cases, it makes sense for smaller properties. While accountants are becoming more and more active in reviewing options for depreciating real estate, in many cases the owner needs to take the lead role in proposing cost segregation as a mechanism to reduce and defer federal taxes.

Property Owner Involvement

Many property investors proudly take the stance that, “my federal tax return is too complicated; my accountant handles it.”

It is almost a rite of passage that a “serious” real estate investor is one whose tax return must be prepared by a third party because it has become too complicated for the investor to complete. Only about 2-5% of depreciation schedule in federal tax returns have short life property properly separated to minimize the owner’s federal taxes. Just as preparing a federal income tax return is too complicated for most commercial real estate investors, preparing a cost seg study is too complicated and specialized for 99.9% of tax preparers. While many parts of the federal tax return may be too complicated for an investor to understand and prepare, this area is simple: if you pay federal taxes and can use additional depreciation, you benefit from obtaining cost segregation studies.

Most investors are not aware of cost segregation and do not understand the benefits it provides. Those who are familiar with cost segregation think it only makes sense for large properties (over $10 million). Regrettably, there is limited and inaccurate information regarding a material issue that could sharply reduce federal taxes for many real estate investors. Cost segregation increases depreciation, a non-cash deduction, thus affecting tax reduction. The federal income tax savings resulting from cost segregation are usually much greater than the fees.

Cost Segregation Example

The following example is for an office building purchased ten years ago for $500,000. The value of the land is 10% or $50,000. The analysis without cost segregation assumes all the value for improvements is placed on the building. The analysis with cost segregation estimates a value of $70,000 for the 5-year property, $5,000 for the 7-year property, $70,000 for the 15-year property, and $305,000 for the 39-year property.

The year-1 savings without the benefits of catch-up is $5,481. The year-1 tax savings for a building purchased 10 years ago including catch-up depreciation is $29,570. This is based on additional year-1 tax deductions (depreciation) of $84,488 which yields a federal income tax reduction of $29,570 ($84,488 x 35%).

Most owners and accountants consider a $500,000 building much too small for cost segregation. Note that even in the year-1 example without catch-up the tax savings are substantially higher than a typical fee for a building this size. Based on traditional thinking that a building has to be $10 million or larger to justify cost segregation, the tax savings need to be 20 times those in this building or approximately $109,600 to justify a cost segregation study. Both the 1-year and 5-year results merit obtaining a cost seg study. The results for the 10-year catch-up are truly compelling. However only 1% or less of owners of $500,000 properties are correctly setting up depreciation schedules.

Table 1

Proportion of Short Life Property

The proportion of short life property typically ranges from 20% to 50% of the cost basis of the improvements. Items which typically affect whether it is at the low end of the range or the high end of the range include the age, condition, intensity of landscaping, amount of surface parking, and land value.

Catch-Up

What is known in cost segregation jargon as “catch-up” is reporting depreciation that has been underreported in prior years since the property was purchased or built in the current year. A real estate investor can “catch-up” underreported depreciation by having his accountant file a form 3115 with the current tax return. The IRS has reported that filing a form 3115 is not a red flag for an audit. Some investors seem concerned this is too good to be true; however, when their accountant reviews the IRS rules and guidelines they quickly find out that you can indeed catch-up underreported depreciation by filing the form 3115. The combination of cost segregation and catch-up depreciation generate meaningful federal income tax relief.

The above example is based on a $1 million apartment complex. The amounts in the table are the year-1 federal tax savings based on different levels of short life property and different periods of ownership. Many investors have owned property for five to 15 years and have the opportunity to catch-up underreported depreciation. The numbers shown in this table will give you some idea of the amount of depreciation and federal taxes savings achievable by obtaining a cost seg study. The tax savings are based on a 35% tax rate. If you are subject to a state income tax, resulting savings will be higher.

This example and the preceding example clearly illustrates that cost segregation is effective for owners of $500,000 to $1,000,000 buildings.

Getting Started

Ask yourself the following questions when deciding whether you can benefit from a cost seg study:

1. Do you pay federal income taxes?
2. Do you own investment real estate?
3. Can you use additional depreciation (a non-cash tax deduction)?

Some owners are passive while others are active. If you are a passive real estate investor you may not be able to use additional depreciation. On the other hand, if you are an active investor or a real estate professional, which includes people in a wide variety of activities from real estate broker to mortgage broker to leasing agent, you are entitled to deduct additional depreciation.

Tax tip: You can also use the additional depreciation as a tax deduction if your business uses the real estate.

If you have determined you can use additional depreciation and are paying federal income taxes, call a cost segregation expert and request a preliminary analysis. There should be no fee for this initial consultation. The preliminary analysis will estimate the amount of 5, 7, and 15-year property, which can likely be identified and will also identify the catch-up depreciation. This analysis will not involve a site inspection and will not be precisely correct. However, it should be accurate enough to help you decide whether a cost seg study is financially feasible.

Once you obtain the preliminary analysis, you should consult your accountant, since he/she will be completing and signing your tax return. In many cases, it makes sense for the accountant, the property owner, and the cost segregation advisor to meet and discuss the options and issues. Tax advice from a trusted advisor is frequently an essential step in making real estate owners comfortable that the tax deductions resulting from cost segregation will generate credible tax reduction.

Assuming you decide a cost seg study does make sense, you should further review whether the extra depreciation should be used in a prior year, which would involve filing amended tax returns, or whether to use it in the current year. To minimize federal income taxes, make obtaining a cost seg study a routine part of future real estate investments.

Correctly calculating real estate depreciation is important because it substantially increases tax deductions and reduces federal taxes for real estate investors. The process of fine-tuning the depreciation schedule is called cost segregation. The adoption rate for cost segregation is under 5% because of limited knowledge by many owners and accountants. In addition, there are misconceptions regarding the cost of obtaining cost segregation studies and the smallest properties for which cost segregation studies are financially feasible. As awareness of the practice and affordable service providers increase among real estate investors and accountants, the adoption rate will increase dramatically.

Copyright by O’Connor & Associates, 2006

The post Cost Segregation: Why Are 90% of Real Estate Investors Overpaying Federal Income Taxes? appeared first on O'Connor Cost Segregation.