Income Taxes Reduced Through Cost Segregation – Office Building Owners
Income taxes are one of many taxes office building owners face. Property taxes are a substantial cost in states with high property taxes and aggressive assessors, such as Texas. Other government payments include state taxes and federal income taxes, permits, fees, and elevator fees. Although federal income taxes are a substantial burden, office building owners have one simple option to sharply reduce income taxes.
Cost segregation is a low-risk yet powerful process to sharply reduce income taxes. It is low-risk because the IRS had published detailed guidelines for its application. It is powerful because owners using it receive a year-one payback ratio of 5:1 to 10:1.
Cost segregation reduces federal income taxes by increasing the amount of depreciation, a non-cash deduction. Increasing depreciation both reduces the income tax rate and defers payment. The tax rate is reduced since the income is taxed as capital gains instead of as ordinary income (for an amount of income equal to the increase in depreciation).
Cost segregation increases depreciation during the early years of ownership by appropriately and accurately allocating a portion of the improvements cost basis to short-life categories. The assets in short-life categories can be depreciated over five, seven or 15 years. The office building itself is depreciated over 39 years.
The following table lists the proportion of the improvement cost basis of office buildings which can typically be assigned to short-life categories:
| Depreciation Life (years) |
Proportion of Improvement Cost Basis |
| 5 year |
11% |
| 7 year |
2% |
| 15 year |
16% |
Office building owners can sharply reduce income taxes by utilizing cost segregation. Obtaining a study prepared by a trained specialist also defers payment of income taxes.
Click here for a FREE preliminary analysis of tax savings resulting from your property.
Cost segregation produces tax deductions and reduces federal income taxes across the country and in every size market. Below are just a few examples of where cost segregation generates meaningful tax deductions.
City:
- Baltimore, MD
- Dallas/Ft. Worth, TX
- Washington, DC
- New York, NY
- San Francisco, CA
- Miami, FL
- Las Vegas, NV
- Bridgeport, CT
- Hartford, CT
- Denver, CO
- Louisville, KY
- Boise, ID
- Toledo, OH
- San Jose, CA
- Madison, WI
- Tulsa, OK
- Colorado Springs, CO
- Manchester, NH
- Fresno, CA
- Honolulu, HI
- Tucson, AZ
- Jackson, MS
- Kansas City, MO
- Harrisburg, PA
- Cincinnati, OH
- Palm Bay, FL
- Worcester, MA
- Omaha, NE
- Albuquerque, NM
- Augusta, GA
Cost segregation produces tax deductions for virtually all property types.
Property Type:
- Power center
- Regional mall
- Service station
- Skating rink
- Strip shopping center
- Tennis club
- Convenience store
- Research and development
- Apartments
- Movie theatre
Almost every industry, including the following, can generate cost-efficient tax deductions by using cost segregation.
Industry:
- Printing activities
- Publishers
- Truck transportation
- Textile mills
- Food manufacturing
- Building supply dealers
- Air transportation
- Amusement parks
- Warehousing and storage
- Health care facilities
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