Save BIG with Cost Segregation for Multifamily Apartment Buildings (Free Webinar)
I've heard of Cost Segregation for multfamily apartment buildings before to save a TON on taxes but dismissed it because I thought it was only something for big commercial property owners – definitely not for smaller properties or newbies.
Boy, was I wrong. After speaking with Heidi Henderson with Engineered Tax Services (ETS) she set the record straight:
If you own real estate valued at least $500,000 – you could save HUGE on your taxes this year.
In this article I want to outline how Cost Segregation could save you significantly on your taxable income and how you can get a free benefits analysis for your real estate portfolio.
What is Cost Segregation and How Can It Save Me On Taxes?
Real estate is normally depreciated over 39 years. This means that each year you can “write off” 1/39th of a building's value from your taxable income. On the other hand, personal property is depreciated over 5 to 7 years. So you can write off an average of 1/6th of any personal property as depreciation from your taxable income each year.
All of this is pretty cool because depreciation isn't an actual cash flow expense, it's just a paper deduction but you can still deduct it from your real estate income.
Cost Segregation makes this even cooler, because it allows you to depreciate MORE SOONER. Here's how it works.
In a Cost Segregation Analysis, the engineer itemizes a building into its individual components: studs, plaster, lighting, outlets, wiring, toilets, fixtures, windows, carpets, etc. Then he assigns each of these items (per the IRS rules here) to the proper depreciation category, either the 39-years or personal property.
The IRS allows many of the building elements to be classified as personal property. This allows you to depreciate the value of the building much faster, which means your depreciation write-offs are much bigger each year than if you were to use the straight 39-year depreciation schedule.
And the other nice thing about Cost Segregation is that it's retroactive, as long as you bought or built the building in the last 5 years.
If you want to find out more about Cost Segregation, please watch my training Webinar with Heidi Henderson here.
Do I Qualify?
Here's the great part. If you own real estate valued at $500,000 or more and you've purchased or built it in the last 5 years, you not only qualify for Cost Segregation but it could save you BIG on your taxes.
Let's do an example of a small 15-unit building. I picked a small building this size because if it works for a small building like this, it'll work for something much larger, too.
Can you Give me an Example of a Cost Segregation Case Study?
Here are the assumptions for this 15-unit building:
- Purchase price: $485,000
- Renovations and Repairs: $90,000
- Purchased: 4 years ago
The benefits analysis estimated that an additional $140,000 could be deducted the first year. Assuming the average combined federal and state tax rate is 48%, the net cash benefit to you would be $67,000 that first year. That's an extra $67,000 in your pocket and all you had to do is pay the engineer $5,500 to do the analysis study.
So if you have taxable income from your real estate, then Cost Segregation would be able to reduce or even eliminate the taxable income completely. And you can carry the loss forward. (I'm not a CPA, so check with yours first to make sure this applies to your personal tax situation!)
How Can I get a Free Benefits Analysis?
You don't have to wonder what your tax benefits could be. ETS makes it really easy to find out with a free benefits analysis. I went through the process myself. Not only was it easy and free, I was SHOCKED at the savings, even for a small 15-unit building that we used as an example.
All you have to do is fill out the form below with a few bits of information and ETS will call you to set up a short phone call.
Disclosure: Please note I will earn a commission if you decide to make move forward with ETS. I have researched ETS thoroughly and have had them provide a benefit analysis for me. So I'm recommending them not because of the small commission I make but because I think it would save you on your taxes. Please do not spend any money on this service unless you feel they will provide value to you.