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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

  • Multifamily Beats the OddsNovember 18, 2020

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

  • 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.

  • 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.

  • 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.

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

    Rebuilding your business in the face of COVID-19

  • 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.

  • 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 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.

  • 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.

  • 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.

  • 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.

  • 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.

  • 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.

Whitepapers

  • Cost Segregation GuideJanuary 1, 2014

    What is Cost Segregation? As a result of a tax case, Hospital Corp. of America, et al. v. Commissioner, 109 TC 21, Code Sec. 168, significant…

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