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Cost Segregation

The Right Strategy

Real property owners are not unlike other investors, always looking for ways to reduce income taxes. As we all know, depreciation and amortization are non-cash tax deductions which help a property owner shelter some of his/her income and help match cash flow with taxable income. The first few years of ownership may be the most critical since this is the time you might be making capital improvements to your property in order to maximize its rent roll. This may also be the time you will be incurring leasing commissions and other expenses to lease up your property and decrease the vacancy rate. Since these years are so critical, wouldn't it be nice to be able to reduce your taxable income and free up tax dollars?

Prior to the 1986 Tax Act, there existed a concept called component depreciation. Component depreciation permitted a taxpayer to allocate the cost of real property among its various components and assign useful lives to each component and depreciate each component based on its useful life. Back in 1986 buildings were depreciated over 19 years. The 1986 Tax Act re-vamped the way taxpayers depreciate their assets. It created the MACRS System for depreciation and did away with component depreciation. Under MACRS, each type of asset is assigned to a class and the class dictates the life to be used for depreciation purposes. Under the MACRS System, residential buildings were assigned a class life of 27.5 years and commercial buildings 31.5 years, until 1993. In 1993, the Internal Revenue Service (IRS) changed the class life for commercial buildings from 31.5 years to 39 years. As a result of these changes in the tax law, a real property owner could only allocate the purchase price between land and building and not to other improvements to their property. Anchin, Block & Anchin has been at the forefront of cost segregation studies. We have performed hundreds of studies valued in excess of $1.5 billion throughout the United States, resulting in $10’s of millions of savings to our clients.

News

  • Anchin in the News
    Planning Ahead: Expected Changes for the Real Estate Industry July 15, 2021

    The Trump Administration enacted one of the largest changes to the tax code when it passed the Tax Cuts and Jobs of 2017 (“TCJA”), which contained various provisions that resulted in significant benefits to the real estate industry, such as the pass-through deduction and the extension of bonus depreciation, to name a few. The question now is, how will this, and other long-standing federal policy norms that the real estate industry relies on to do business, all change under the Biden Administration?

  • Anchin in the News
    ‘Totally Inadequate’: CRE Tax Experts Say City Underestimating Extent Of FalloutJuly 2, 2021

    New York City slashed property values this year, drastically reducing tax obligations for many commercial landlords across the city. But even with assessments down by more than 20% in some cases, some owners say the reductions are not nearly enough relief, given the circumstances, and are squaring up to fight the city with greater force than ever before.

  • Anchin in the News
    Business & Finance AwardsJune 30, 2021

    Robert S. Gilman, CPA, CGMA, is an accounting and audit partner at Anchin and co-leader of the firm’s real estate group. He has extensive experience serving real estate owners, developers, and operators in both the commercial and residential sectors. Gilman advises his clients on day-today operations, tax saving opportunities, and transactional support that includes due diligence on the acquisition and disposition of real estate, 1031 exchanges, and opportunity zones. His experience extends to tax structuring on deals, securing financing, reviewing, and analyzing operating agreements and assisting with client investor relations for both domestic and international investors. Gilman also advises clients on financial and estate planning, budgeting, tax planning, and cash flow strategies. Many of his clients’ projects are built from the ground up and require intensive reviews of construction and ancillary costs. He also consults on compliance, accounting, and tax issues that impact the real estate industry.

  • Anchin in the News
    NYC Real Estate Biz is Fighting Bevy of New Taxes, RegulationsJune 15, 2021

    The real estate industry is reeling in the face of new legislation, extended eviction moratoriums, environmental regulation and higher taxes. Now, trade organization and industry leaders vow to fight back.Most recently, industry executives are warning that the Biden administration’s plans to hike the tax on long term capital gains above $1 million from 20% to the top bracket would result in a top bracket rate of 43.4%. In late May, the administration also revealed that the capital gains tax hike would be retroactively applied to assets sold after April 2021. 

  • Anchin in the News
    Biden Tax Proposal Would Squeeze Apartment-Building OwnersMay 11, 2021

    The Biden proposal has yet to become part of a bill and passed by Congress. But property investors already view it as the latest threat to their business after the pandemic undercut many of the biggest real-estate categories. Widespread work-from-home policies have reduced office demand while travel restrictions have hurt hotel owners.

  • Anchin in the News
    Best Bosses 2021April 5, 2021

    MARC WIEDER & ROBERT GILMAN Anchin, Block & Anchin As partners and co-leaders of the real estate practice group at Anchin, Block & Anchin, Marc Wieder and Robert Gilman lead a 36-member team that represents some of the biggest players in commercial real estate on everything from transactional guidance and 1031 exchanges to advisory on tax strategy to cash flow analysis. The duo has an impressive reputation among both clients and colleagues.

  • Anchin in the News
    Want Commercial Property Tax Relief? Don't Hold Your BreathMarch 28, 2021

    Economic slumps traditionally set off battles between local governments trying to make up lost revenue by holding the line on property taxes and property owners trying to cut their taxes to be more in line with their diminished bottom lines.

    For many commercial property owners, the pandemic-inspired recession has set that dynamic in play once again but with some new twists. For one thing, not all owners have had a hard time, such as most industrial owners. More importantly, tax experts say the prospect of a relatively short downturn might give taxing authorities the upper hand.

  • Anchin in the News
    Groups See Target on 1031 ExchangesMarch 26, 2021

    Concern is mounting that the Biden Administration’s next policy package could eliminate a crucial tax break for commercial real estate owners, which could translate into lower transaction volumes and demand for lending.

  • Anchin in the News
    Anchin’s Real Estate Group’s Robert Gilman and Marc Wieder Named to Crain’s New York’s 2021 Most Notable in Real EstateFebruary 2, 2021

    NEW YORK--()--Anchin, Block & Anchin LLP (“Anchin”), a leading accounting, tax and advisory firm, today announced Robert Gilman and Marc Wieder, co-leaders of the Real Estate Group, have been recognized on Crain’s New York’s Notables in Real Estate list for 2021. The award honors real estate executives who have significantly impacted the New York City real estate industry, and celebrates their professional, civic and philanthropic achievements.

  • Anchin in the News
    How Class C Apartment Residents are Getting ByDecember 29, 2020

    The pandemic’s impact on apartment dwellers hasn’t been uniform.

  • Anchin in the News
    The Nitty Gritty on Federal Rent ReliefDecember 22, 2020

    As the multifamily sector welcomed the inclusion of $25 billion in rental assistance in the federal relief package, it rushed to decipher the 5,000-page bill.

  • Anchin in the News
    Multifamily Beats the OddsNovember 18, 2020

    While hotels, retail and offices sink, the multifamily sector is sailing along.

  • Anchin in the News
    City Landlords' Biggest Property Tax Hurdle Still to ComeAugust 6, 2020

    Property owners have been pleading with city and state officials to offer tax relief ahead of the July 1 deadline amid waves of rent nonpayment from tenants and empty properties. Lawsuits between tenants and their landlords are clogging up the courts, and the future of retail remains murky. 

    Still, landlords have been putting aside money for taxes for months and collecting enough rents over the course of the pandemic to foot their July 1 property tax bill, said Robert Gilman, head of accounting firm Anchin, Block & Anchin's real estate practice.

  • Anchin in the News
    Industry Executives Take Long View on COVID RecoveryJuly 17, 2020

    The coronavirus pandemic is likely to infect the city’s real estate sector well into next year, according to a new survey of C-Suite executives.

  • Anchin in the News
    20 Things To Know About the New Tax DeadlineJuly 2, 2020

    In response to the coronavirus pandemic, the Internal Revenue Service has extended the deadline to file and pay any taxes owed from the original date of April 15 to July 15.

    everything you need to know." data-reactid="18">If you’re planning on taking advantage of the new deadline, here’s everything you need to know.

  • Anchin in the News
    Rebuilding Your Business in the Face of COVID-19 June 25, 2020

    Rebuilding your business in the face of COVID-19

  • Anchin in the News
    Owners Call On Cuomo to Scrap RGB After It Delivers Another Rent FreezeJune 18, 2020

    The Real Estate Board of New York (REBNY) is calling on the State to scrap the city’s Rent Guidelines Board after it voted to freeze rents for one million New Yorkers.

  • Anchin in the News
    Bracing for More Job Losses, Looking Toward Better DaysJune 4, 2020

    As tomorrow’s U.S. unemployment numbers are predicted to hit at least 20 percent due to the COVID-19 shutdowns, economists and commercial real estate experts say there will be post-pandemic changes on the commercial real estate landscape during the slow road to recovery.

  • Anchin in the News
    Anchin Eyes Impact of Lower Than Expected Rents on Valuations, ProfitabilityJune 4, 2020

    Anchin, Block & Anchin is talking with its clients about the impact that potential declines in office rental rates could have on commercial real estate valuations and profitability. The question is an important one for real estate fund managers and other institutional-backed capital focus on the office market, which has traditionally been a core asset class fo real estate fund managers and other institutional-backed capital focus on he office market, which has traditionally been a core asset class for investment, noted Rob Gilman, partner.

  • Anchin in the News
    Questions New York's CRE Companies Have for Their AccountantsMay 20, 2020

    NEW YORK CITY—The pandemic has caused a level of economic disruption never seen before. Not surprisingly, real estate companies have many questions for the professionals that they rely on, such as financial advisors and accountants. Marc Wieder, an accounting and audit partner at the real estate group at Anchin, Block and Anchin, one of North America’s largest public accounting firms, has been fielding queries from the firm’s New York’s owners, developers, fund managers, agents and brokers, since day one.

  • Anchin in the News
    Coronavirus PPP Exclusion Puts Landlords in Financial JeopardyMay 20, 2020

    While lawmakers provided aid to small businesses across the country through their multitrillion-dollar stimulus legislation, landlords have been unable to apply for funding – leaving some facing serious financial challenges.

  • Anchin in the News
    19 Things To Know About the New Tax DeadlineMay 4, 2020

    In response to the coronavirus pandemic, the Internal Revenue Service has extended the deadline to file and pay any taxes owed from the original date of April 15 to July 15.

    If you’re planning on taking advantage of the new deadline, here’s everything you need to know.

  • Cost Segregation
    How Can a Cost Segregation Study under the TCJA Benefit You? January 15, 2019

    Cost Segregation Studies have been around since the Hospital Corp of America case back in 1997. Many developers and property owners have taken advantage of this study to accelerate their tax deductions through depreciation on both their developments and acquisitions.

  • Anchin in the News
    Cost Segregation Studies Save Real Estate Even More Taxes Than Before, Thanks to TCJADecember 17, 2018

    Since their introduction in 1997, cost segregation studies have allowed developers and property owners to accelerate their tax deductions through depreciation on both developments and acquisitions.

    But with the implementation of the Tax Cuts and Jobs Act (TCJA) in 2017, these studies are even more valuable now than they were before.

    Originally published by Commercial Observer.

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