|
Do you own commercial property? If so, you may be
entitled to a large cash benefit from the
IRS immediately. Fortune 500 firms have been using this IRS approved tax
strategy for years. You
to can drastically increase cash flow reduce tax liabilities
and improve your ROI.
|
|
Thousands of
business owners are improving cash flow and
finding immediate tax savings from their commercial and residential
investment properties. They are finding these benefits from an unexpected
source: The Internal Revenue Service. This incredible tax strategy
known as Cost Allocation allows commercial property owners
to accelerate the depreciation of their building from a
straight line method of 39 years down to
shorter recovery periods of
5,7 or 15 years. This could equate to thousands, hundreds of
thousands...maybe even millions of dollars for your immediate access!
|
In other words, if you were to hit the lottery,
would you like the payout spread over 39 years or over the next 5 or 7 years?
|
"Cost Allocation Studies are a
lucrative tax strategy that should be used in
almost every major purchase of commercial
real estate"
US TREASURY DEPARTMENT
|
Some examples of how our clients benefit:
Manufacturing
Firm: 1st year cash
benefit: $1,982,000
Large Nursing Home: 1st
year cash benefit: $550,000
Hotel
Owner: 1st year cash benefit: $376,000
Large
Office
Building: 1st year cash benefit: $49,174,112
Auto
Dealership: 1st year cash benefit: $550,000
Cost Allocation
Overview:
Money doesn’t grow on trees...but it could be hidden in the walls
Cost Allocation Studies (CAS) have become an increasingly valuable,
but not a commonly understood tax strategy that should be considered by
virtually every tax payer who owns, constructing, renovating or acquiring a
real estate facility.
Its tax benefits can be applied to
virtually all types of real estate that have a value of at least $750,000.
|
> Manufacturing Facilities
> Strip Malls
> Apartment Buildings
> Warehouses
> Medical Facilities
> Health Clubs
> Banks
|
> Restaurants
> Grocery Stores
> Office Buildings
> Golf Courses
> Retail Facilities
> Car Dealerships
> Senior living facilities
|
What is Cost Allocation?
Cost Allocation is a lucrative
opportunity for commercial property owners to apply an accelerated depreciation
schedule to property usually classified as "real" (Section 1250) - but under improved IRS rulings -
can be reclassified as "personal property" (Section 1245).
The concept of cost allocation is fairly
simple. The IRS Code allows the structural components of a building to be
depreciated over a period of 39 years (27.5 years for residential investment property).
But non structural components: carpeting, electrical system, HVAC,
fixtures, plumbing, ceiling, equipment, land improvements, parking
lots etc... Can be compressed into shorter cost recovery periods (5, 7
and 15 years). When these non structural components are segregated into a much
shorter depreciation class and reclassified as personal property, substantial
savings can be realized immediately. In most cases, up to 40% of a
building can be reclassified!
These rulings are not new, but have
historically been available to commercial property owners who were clients to
the elite big 4 accounting firms. Most CPA's are aware of accelerated
depreciation but do not have the architectural and structural engineering
background to perform this very detailed extensive study that's needed to
maximize the IRS Cash Benefit. This engineering-based study must
be performed by a qualified engineering firm, or thousands and even hundreds of
thousands of dollars could be left on the table.
Qualification for a Cost Allocation Study
1. Is the property valued in excess of
$750,000 (land excluded)?
2. Do you operate for profit?
3. Do you intend to hold the property for another 3 years?
4. Do you pay income tax?
5. Was the building constructed or acquired since 1987
if you
answered yes to these questions, then you should consider a cost allocation
study.
What are the immediate benefits?
1. Increase your cash flow immediately
2. Reduce your taxable income
3. Increase ROI
4. Qualify for "Catch Up" depreciation back to 1987
5. Reduction on insurance premiums
6. Reduction in property taxes
7. Complete audit trail supporting asset reclassifications
Can
I do the Allocation Study?
No, for two reasons.
First, you will obtain maximum benefit by hiring a firm with expertise in
onsite engineering surveys, estimating, appraising and allocating construction
and acquisition cost based on IRS Techniques/Guidelines and case law.
Second, the IRS states that: "an
accurate cost allocation study may not be used on non contemporaneous records,
reconstructed data, taxpayer's estimates or assumptions that have no supporting
records."
"Cost
segregation studies require a skill and understanding of case law that is
vested only in specialist. The studies require a significant expenditure
of time in preparation...Only those taxpayers with access to the professionals
who can prepare a valid study may claim this tax benefit." Ken M.
Berry, IRS
____________________________________________________________________________
THIS FIRM THROUGH OUR PARTNER CORE Solutions
Group provides the team and years of experience in Cost Allocation and
Structural Engineering to meet all IRS, Treasury and legal requirements.
____________________________________________________________________________
How fast can I receive my cash benefit?
Savings are generally available right
away. For newly acquired buildings or improvements savings begin immediately by
using the shorter lives and accelerated methods in the tax returns filed
for the year that the assets are placed in service. For older buildings or
improvements, any savings not taken advantage of since the construction, may be
recovered or caught up. In some cases a tax refund can be obtained depending on
the taxpayer's circumstances.
What are
the typical savings I can expect from the study?
The average net present value (NPV)
of additional cash flow is approximately $200,000 for every $1,000,000
of 39 year property that is reclassified. Typically between 15% - 40% of
buildings overall cost can be reclassified to one of the shorter cost recovery
periods. The actual cash benefit depends on the type of property and its
specific construction components.
Example:
The Wall Street Journal reported an interesting example of a real estate
developer in
Southern California
who used cost allocation accounting to his advantage, saving hundreds of
thousands of dollars in taxes in the first year after performing the study.
After developing a $4.6 million manufacturing facility, the owner could
have depreciated the property by $120,000 using the simple 39 year
straight line IRS formula. But by using cost allocation, the owner was
able to depreciate the property by $397,000 in just the first year
alone.
IRS and history on Cost Allocation:
Although cost allocation has a long
history, the basis for today’s studies was established in a landmark US Tax
Court decision in 1997 by the
efforts
Hospital Corporation of
America. HCA argued even after the tax changes
in 1986, the old tax rules could be used for separating personal property from
buildings structural components for depreciation purposes. The law suit between
HCA and the IRS ended up in US Tax Court, which eventually sided with HCA.
This ruling saved HCA millions of tax
dollars and ushered in a new era in cost allocation accounting.
___________________________________________________________
This tax strategyis supported
by more then 200 court cases, treasury regulations and IRS revenue rulings.
____________________________________________________________________________
What is involved in having a study done?
1. CORE offers a Free NO RISK Initial
Review to determine feasibiltiy/applicabiltiy. We will evaluate your
current tax status and future business plans to determine whether a Cost
Allocation Study will benefit you.
2. CORE will then ask you to provide us
with preliminary information from which we will run through our software
to furnish an assessment of the potential savings that may available.
3. CORE will visit the site and meet with
you in person and review the potential cash benefit and
our fees to conduct the study, as well as answer any and all
questions.
4. With your written approval, we gather
information from your construction documents and other supporting information
to show how components and systems are utilized.
5. We then bring in a team of specialized
engineers to perform the on site study. Our team uses state of the art
industry tools to segregate cost based on case law and strict IRS Guidelines.
How much does a study cost?
It depends on the project. Each study is
unique and the fee is comprised of many different variables. We charge a
reasonable fee depending on the size and scope of the project. We also bring
other valuable cost savings techniques that separate us from all other firms.
The finished product:
At the conclusion of the study, CORE
delivers and reviews with you a written and detailed report showing the
breakout of the costs qualifying for the shorter lives, outlining the
methodology used and documenting the allocated cost in detail. More
importantly, providing a complete audit trail that will withstand an IRS Audit.
Why hire CORE?
CORE'S team of Engineers has been
specializing in cost allocation services and have been offering award winning
Architectural and Engineering services since 1989. We offer a unique blend of
tax professionals, extensive experience in design and structural engineering
which allows us to properly identify and classify cost of building elements to
maximize the benefits from a Cost Allocation Study.
Check out the other Profit Improvement
Services we offer. You will be amazed on what we bring to the table.
CALL TODAY FOR A FREE PROPERTY REVIEW.
To learn
more about how a Cost Allocation Study could benefit you,
please contact Alex Tong at (972) 248-4382
