PLANNING
GET THE MOST OUT OF YOUR INVESTMENTS
Knowing when to sell property is equally, if not more important, than knowing when to buy property. The reason being is that when investors hold commercial property they're depreciating that asset every year, giving them less and less basis to leverage. When that basis runs out, the tax payer is left with a property that gives them zero deductions on their income tax, making that property ultimately less profitable.
At USA Cost Segregation, we help our clients avoid this position by evaluating their holdings and creating a plan that will allow them to make the most out of their commercial property investments.
THE TALE OF TWO INVESTORS
EACH BUY $7M HOTEL
HOTEL INCOME:
350K
OTHER INCOME:
600K
JOE
HAS TAX BURDEN
OF $332,500
DEPRECIATION DEDUCTION:
$179,487
$62,820 TAX SAVINGS
TAX BURDEN IS NOW
$269,680
NET INCOME:
$680,320
JACK
HIRES USA COST SEGREGATION
FIND 23% 5 YR. &
11% 15 YR. PROPERTY
FIRST YEAR DEDUCTION:
$1,423,835
TAX SAVINGS OF
$332,500
NET INCOME:
$950,000
SCENARIO ONE: WITHOUT COST SEGREGATION
Joe buys a hotel for $7,000,000 and it provides him with $350,000 of taxable income.
Joe also owns several other properties and businesses that provide him with an additional $600,000 in taxable income resulting in a total taxable income of $950,000.
At a 35% tax rate his tax burden would be $332,500. His straight-line depreciation deduction is $179,487 which times his 35% tax rate will save him $62,820.
His tax burden is now $269,680 and his income after taxes for the year is $680,320 . And this situation would continue if nothing changed for the next 39 years.
SCENARIO ONE: WITHOUT COST SEGREGATION
Jack buys a hotel for $7,000,000 and it provides him with $350,000 of taxable income.
Jack also owns several other properties and businesses that provide him with an additional $600,000 in taxable income resulting in a total taxable income of $950,000.
USA Cost Segregation returns with results allocating 23% to 5 year property and 11% to 15 year property resulting in a first year depreciation deduction of $1,423,835 which times Joe's 35% tax rate would save him $498,342.
Jack's tax burden of $332,500 is now completely gone with a leftover deduction for the next year of $165,842 in addition to his second year depreciation deduction of $135,835 resulting in a total second year deduction of $301,677 saving Jack a total of $438,086 in two years.
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