How To Grow Your Wealth Through Real Estate Tax Efficiency Strategies

Grow Your Wealth Through Tax Efficiency

With tax reform, cost segregation is now more critical than ever.

By Julio Gonzalez – Engineered Tax Services Inc.

Tax reform substantially aided business owners of all types, but especially owners of investment properties. To take maximum advantage of all the benefits afforded by the Act, proper planning is critical – now, more than ever. With tax reform, every dollar missed may cost you more than a dollar.
Successful tax planning of investment properties begins with an engineered based cost segregation study. Reaching maximum tax efficiency by using all accepted tax planning strategies, is a critical component to increasing your families long term wealth. Many times, these studies add 100-300 percent more first year depreciation dollars over standard methods.
It’s like earning interest, on your interest, all through being more tax efficient.
Cost segregation studies help identify assets that qualify for saving opportunities and accelerated depreciation deductions. The studies are especially beneficial to commercial real estate developers, owners, and investors with new construction, renovations, or recently acquired buildings.
In light of tax reform, cost segregation studies can determine eligibility for the following.
1. Bonus depreciation
  • Bonus depreciation has increase to 100 percent for qualified assets placed in service after Sept. 27, 2017.
  • Now applies to used and new property
  • For new construction, it is important to know when a binding contract was entered into between the owner and general contractor
  • A cost segregation study will identify which assets qualify for the 100 percent bonus depreciation.
2. Section 179 expensing deduction
  • The expenses limit has increased to $1 million.
  • Qualifying property now includes roofs, HVAC systems, fire protection, alarm, and security systems.
  • Some assets will qualify for Section 179 expensing but not bonus depreciation, so a cost segregation study can identify all qualifying assets for maximized benefits.
3. 20% Pass through deduction
  • Eligibility for receiving this valuable deduction in many cases will be an income planning issue.
  • Deductions from investment properties enhanced by cost segregation, may be crucial in determining the extent these deductions benefit your overall income tax calculations.
4. Opportunity Zone Investments
  • New legislation included in the Act allows for favorable capital gains tax treatment for investments made in a Qualified Opportunity Zone.
  • While final regulations have not been issued, the Opportunity Zone investments can allow for some favorable deferral of current capital gains if harvested and placed into a Zone investment.
  • Favorable long-term capital gains treatment if investments are held for various time frames.
  • If Opportunity Zone investment is held for at least 10 years, the entire new investment receives a step up in basis to the current selling price, meaning the original capital gain, and the hopefully new gain, all may be received tax free. Of course, awaiting final Treasury Department review.
  • These could revolutionize the 1031 investment strategy market place, by providing favorable tax deferral, if placed in an Opportunity Zone investment, and a possibly receive a full step up in basis during the investors lifetime.
There are many federal, state and local tax, energy and insurance savings available from applying all accepted tax strategies to your investment properties. The 2017 Tax Cuts and Jobs Act (TCJA) substantially enhanced those savings, but in order to harvest the maximum benefits, a comprehensive review of every wealth building technique is demanded. Final regulations pending.
Many benefits of cost segregation apply to structures previously owned not just new construction or purchase.
With real estate wealth building, cost segregation studies are the linchpin for successful dollar enhancements to your bottom line. Studies come in several varieties, but the most comprehensive, meaning the most tax, energy and insurance savings, can only be achieved by an Engineers Forensic Study.
A qualified engineering tax company can identify more components for deductions and bonus depreciation because of licensing and training in structures and buildings, especially when compared to the simpler method allowed for use by accountants. The return on investment (ROI) from an engineer?s study is many multiples of the fee. Many CPAs recommend these types of studies to their clients because their investment returns are significantly enhanced by applying the added deductions found in an engineer’s study.
Combine the science of engineering with the principals of accounting at ETS, and watch your wealth grow.
Proprietary next generation cost segregation studies also increase tax savings in the
following ways:
  • Identify possible State and Local Tax savings or credits related to a new developments or renovations of existing structures
  • Historic credits attached to rehabilitation, as well as qualification of buildings for these credits
  • Annual updates in order to increase partial dispositions along with repair and maintenance deductions
  • Property insurance premium savings through an engineer’s replacement study for insurance purposes
  • Energy audits conducted by impartial engineers which could substantially decrease your buildings overall energy costs.
  • Most all investment properties qualify, some receive more savings than others, but dollars are available for all.

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