Tax Reduction Through Cost Segregation
What Is Cost Segregation?
As a commercial or residential rental property owner, Cost Segregation is a simple tax strategy by which you can accelerate depreciation, thereby reducing your income taxes.
Traditionally, commercial property depreciates over 39 years, and residential rentals over 27.5 years.
However, some building components fit into tax categories that can depreciate faster than the building structure.
An engineering-based study can categorize your building components into shorter depreciation periods of 5, 7, and 15 years, resulting in higher depreciation deductions and reduced income taxes, saving you money.
Recent Case Studies
Apartment Complex
Apartment Complex
Apartment Complex
Cost of the property: $15.1M
First Year Cash Flow From Tax Savings: $236,763
Five Year Cash Flow From Tax Savings: $570,288
Medical Office
Apartment Complex
Apartment Complex
Cost of the property: $8.90M
First Year Cash Flow From Tax Savings: $151,576
Five Year Cash Flow From Tax Savings: $347,281
Restaurant
Apartment Complex
Restaurant
Cost of the property: $2.68M
First Year Cash Flow From Tax Savings: $71,374
Five Year Cash Flow From Tax Savings: $173,503
Business Continuation Strategies
Buy Sell For Business Owners
One of the major concerns facing owners of family or closely held businesses is how to affect an orderly transfer of the business to the next generation or to a key employee. The main issue in succession planning is to achieve a smooth transition between the current owner and the future owner(s), while providing a way to turn the business interest into cash needed to pay for liquidity needs, such as retirement income, survivor income or estate settlement costs.
The first critical step is to decide what he/she would like to happen to the business. Once they have a transition plan in mind, a written plan called a Buy Sell agreement, is prepared.
Once the agreement is in place, the parties need to select and implement funding for the agreement. Various methods exist, such as setting up a Sinking Fund, obtain Loans, agreeing to an Installment Sale, or the use of Life Insurance, which is often considered the preferred method of funding.
With Life Insurance, a policy is purchased on the life of each owner:
- At disability or retirement, cash value is used to purchase shares. Owner then sells shares to the successor.
- At death, tax-free proceeds are used to purchase shares. Deceased owner's family sells shares to successor owner.
There are several types of Buy Sell agreements:
- Stock redemption agreement
- Cross purchase agreement
- Wait and See agreement
- One-way agreement
A Buy Sell agreement is a legally binding contract, so professional help is necessary. The business owner(s) should seek the counsel of an experience business attorney to create a Buy Sell agreement.
Key Person Life Insurance
Key person insurance is a type of business life insurance designed to help a company recover from the economic loss caused by the death of an owner, partner, or essential employee. key person insurance provides financial protection by giving businesses funds to find and train replacements for key employees. Key person policies are owned by the company and is the sole beneficiary of the death benefits.
A key person life insurance policy provides peace of mind to business owners and shareholders alike, knowing the business can continue operation without significant financial disruption in the the even of the loss of a key employee. If death or disability strikes, key person insurance may be the difference between your company's ultimate survival.