COST SEGREGATION STUDIES DEFER INCOME TAXES, THEY DON’T ELIMINATE THEM…

COST SEGREGATION STUDIES DEFER INCOME TAXES, THEY DON’T ELIMINATE THEM…

BUT THEY DO HELP YOUR CASH FLOW!!!

PART II OF II… THE END…

But, after 5 years the asset with the 5 years useful life would have been depreciated to ZERO anyway, after 7.5 years the asset with the useful life of 7.5 years would have been depreciated to ZERO anyway, too. And, after 15 years the asset with the useful life of 15 years would have been depreciated to ZERO too, too!!! (I did that purposely) So, after 15 years the land had not been depreciated, the assets with the different useful lives would have been depreciated to ZERO and depreciation on the structure remains for another 12.5 years. So, in year 16, if you hold onto that asset for that long, you would be in the same position that you would have been after 15 years anyway. So, you have not eliminated once cent of income tax. You have deferred the income tax.

But what that does do is it puts the tax savings in your pocket NOW!!! Instead of paying that money to the Department of the Treasury, I was a CPA for over 50 years, and I know who you write the check to, so you can use that money to purchase other real estate, to improve what you just bought, for operations, or just to earn income on. The present value of money is a very important concept and that actually does save you money or taxes!!!

Once last point. Starting January 1, 2023, Bonus Depreciation began to be phased out by 20% a year so, by 2027, Bonus Depreciation is supposed to go away. But it is my opinion that it won’t because the government has to keep the incentive for the real estate investor to keep buying or building and we will only find out what Bonus Depreciation will become as we get closer to 2027. If the government, Democrats or Republicans, stop giving real estate investors or professionals the incentive to keep building or buying commercial real estate the economy will become stagnant and we would probably go into a recession.

So, it is my educated judgment that the government will come up with something to replace Bonus Depreciation and I have no clue what it will be or what it could be called. They could call it Mickey Mouse Depreciation for all I know, but it’s really important that we have something to replace Bonus Depreciation and have it in a timely manner!!!

You CAN and will save income taxes when you do a second Cost Segregation Study when selling the property. By coming up with reasonable fair market values of the tangible personal property that you include in the sale that the IRS accepts, you can convert ordinary income, taxes at higher rates, into capital gains, taxed at lower rates. The difference in the rates is a REAL income tax savings!!!

Have a wonderful weekend!!! I have absolutely no idea what I will be posting on Monday, so why don't you come back, and we will all be surprised!!!