Just a reminder for building owners and their tax professionals out there…we are the outsourced provider for hundreds of tax professionals and firms who need to get cost segregation done for their clients. We can help with partial asset dispositions on large ($100k+) renovations as well as capitalization to expense reversals. If you have clients who have buildings and if they haven’t done a cost seg study, reach out and let’s talk. We can usually make it work for a client down to about $200,000 in depreciable building cost / basis. We are still 5-6 weeks away from our deadlines to hit tax deadlines of 3/15 and 4/18/23…that time will go fast. Let’s get them scheduled.
Month: December 2022
Many REALTORS® own investment property and some own commercial property. If they do real estate full time, generally they can use depreciation from their real estate investments to offset tax liability from their real estate sales activity. As always, please consult with your own tax advisor to make sure you qualify for this and that your involvement with your investments is such that you can utlize the depreciation to lower your income taxes.
But let’s say you do qualify and you have the following scenario…
REALTOR® Commissions for 2022 net after expenses: $150,000. Let’s say you own a single family rental home that you purchased this year for $325,000 and the land is worth $50,000 leaving you with a building cost / basis of $275,000. When you evaluate your P&L on your rental home after deducting your expenses, debt service and standard depreciation, you end up making $2,000 net profit this year. That certainly isn’t going to create much of a tax burden for you so you wouldn’t do a cost segregation study just to save $700-$800 taxes for the year. But this isn’t the entire picture. In this situation, a cost segregation study may help you save about $15-$20k in income taxes. Let’s take a look.
If this building was put into service right away Jan. 1, 2022, your depreciation for the year would be $10,000 which is the straight line depreciation amount you can take each year for the life of your ownership or until you’ve fully depreciated the building after 27.5 years. A cost segregation study might generate a depreciation expense of about 20-25% of the cost basis which was $275,000. A study would generate a depreciation expense of about $55,000 – $68,000 which means this REALTOR could likely lower their taxable income from $150,000 to $95,000 or lower. That might be a 30% tax savings for this agent which would be about $15-$20,000. The cost to do a study like this might be $2,250 – $2,500 – net cost would be about $1,500. Pay $1,500 and save $15,000 on your taxes. This is a 10:1 ROI or a 1,000% return on your money. Not bad.
REALTORS® especially should consider cost segregation as a tax minimizing strategy if they own rental investment properties or commercial properties. As always, please consult with you tax advisor. If you have questions or would like to get a quote, please don’t hesitate to reach out to me at john.murphy@costsegregationservices.com or 864-276-1448. I work all over the country in all 50 states.