Category: Specialized Tax Incentives

The #1 Lie About Cost Segregation

Cost Segregation on Older Buildings?

It is impossible for me to calculate the number of calls I’ve had with building owners and CPAs on the subject of Cost Segregation. Working some numbers in my head (ok, on my calculator), the number is likely well over 10,000. Out of all those calls there is one particular item that continues to rear its ugly, uninformed head and I can no longer stay silent. I must respond… with vigor!

The “item” in question comes in the form of the following quote, which I’ve heard too often to count:

“You can only do Cost Segregation on a new building or new renovation.”

I have no idea where this rumor started. I hear it weekly and now I am blogging in rebuttal.

First, I will say an unequivocal “Yes”, it is beneficial to have a Cost Segregation study done when you purchase/construct/renovate a new building. In fact, anyone constructing or renovating a commercial property should have a study completed. However, the true power of Cost Segregation is displayed on buildings that are not new!

“But, you can only do Cost Segregation on a new building or new renovation”.

To officially rebut this statement, I will go straight to the source. The first sentence in the IRS Cost Segregation Audit Techniques Guide – Chapter 6.2 reads:

[box style=”2″][googlefont font=”Sanchez” size=”16px”]”A taxpayer may conduct a cost segregation study on used property and then recompute its depreciation deductions for prior years”. *[/googlefont][/box]

Not only “may” a taxpayer do this but over 75% of our projects are older properties. In the industry we call this the “Catch Up” method, and it can produce powerful results.

Here is an example:

Mr. Client acquires a commercial property for $3,500,000 five years ago and never completed a Cost Segregation Study.

Despite rumors to the contrary, Mr. Client recognizes he may now have an opportunity to benefit from a study (maybe he read this blog post).

Mr. Client hires an expert (GMG for example), who identifies 20% ($700,000) of components that should have been allocated to 5-year life instead of 39 years. Mr. Client jumps for joy when he realizes the IRS will allow him to “catch up” $700,000 of missed accelerated depreciation on his next tax return!

Why doesn’t every building owner and CPA know this?

The answer is simple; it is not their area of expertise. Although some building owners and CPAs have substantial experience with Cost Segregation, most do not. There is a dearth of true educators in this field, which unfortunately leads to much misinformation. These factors have caused countless thousands of building owners to miss out on this powerful tax savings strategy.

All is not lost!

If you own a building and have not had a Cost Segregation study performed, you have not missed the boat. Hundreds of thousands, or even millions, of dollars in tax savings may be available to you. Now that you are aware, let’s see how much you qualify for!  Contact Us today for more information.

* Full Link: http://www.irs.gov/Businesses/Cost-Segregation-ATG-Chapter-6-2-Change-in-Accounting-Method

Specialized Tax Incentives for Auto Dealerships

Auto dealers have two major tax incentives available to them, yet most are not taking advantage and consequently losing money. The main programs that most in this industry are missing out on are:

  1. Engineering-based Property Cost Allocation
  2. Property Tax Reduction

Engineering-based Cost Allocation

Engineering-based cost allocation identifies opportunities for federal, and in some cases, state tax advantages to owners of commercial industrial real estate by accelerating the depreciation on their property.

Taxpayers are typically correct in depreciating personal property such as equipment and furniture over five or seven years, but they often neglect available federal and state tax benefits by erroneously depreciating their entire investment in constructing or acquiring a building over 39 years. To do this correctly, one must hire an experienced engineer with a thorough understanding of construction finance.  The engineer will review all blueprints, architectural drawings, and electrical plans to isolate structural and mechanical components from those that are considered personal property in addition to identifying architectural and engineering fees that can be segregated.  The resulting cost allocation report will allow a taxpayer to:

  • Adjust the timing of deductions thus maximizing tax savings
  • Create a complete audit trail to resolve any IRS inquiries
  • Capture immediate retroactive savings on qualifying properties
  • Reduce real estate tax liabilities significantly

Property Tax Reduction

Probably the most frustrating bill that comes each year (or in some cases, twice each year) is the property tax bill. As of this writing, our studies indicate the average Auto Dealer in the United States is being overcharged by 20% on their property taxes. There are many reasons Auto Dealers are overcharged but mainly it is the result of improper assessments by the municipality. If you own an Auto Dealer and are paying property taxes over $50,000 per year, you should have a review completed on your facility. Reductions in this area are direct to your bottom line!

If you have not had a thorough review on your facility, especially as it relates to the areas of Property Cost Allocation, and Property Tax Reduction, you are likely losing money that should remain in your pocket.

Keller Williams Commercial Partnership to Bring Millions in Tax Incentives to Commercial Clients

October 4, 2012 – Keller Williams Commercial, the second largest real estate franchise operation within the U.S., has partnered with Growth Management Group, LLC (GMG), a national cost recovery firm, to provide commercial clients the opportunity to gain hundreds of millions of dollars through specialized tax incentives.

Based on the synergy between both organizations, this partnership will provide clients with every opportunity to make the best investment when purchasing commercial property by reducing taxable income, improving cash flow and ROI.

This partnership will substantiate KW’s commitment to excellence which was confirmed with the 2012 J.D. Power & Associates “How Buyer/Seller Satisfaction Study”, ranking them highest in customer satisfaction.

To date GMG has discovered almost $300 million dollars in refunds and/or incentives for it’s clients.  GMG’s  position as a nationally recognized full service Training, Development and Cost Savings Consulting Firm with a vision to stimulate economies aligns with the same commitment to excellence that KW has established.

For more information about Growth Management Group, LLC, contact:  Kendra Pelch, kpelch@gmgconsulting.net (888) 705.5557, www.gmgsavings.com.

For more information about Keller Williams Commercial Real Estate, contact:  http://www.kwcommercial.com

 

References: http://www.kw.com/kw/pressrelease.html?pressReleaseId=381

 

Restauranteurs – Stop Losing Money!

Restaurants have two major tax incentives available to them, yet most are not taking advantage and consequently losing money. The main programs that most in this industry are missing out on are:

  1. Engineering-based Property Cost Allocation
  2. Property Tax Reduction

Engineering-based Cost Allocation

Engineering-based cost allocation identifies opportunities for federal, and in some cases, state tax advantages to owners of commercial industrial real estate by accelerating the depreciation on their property.

Taxpayers are typically correct in depreciating personal property such as equipment and furniture over five or seven years, but they often neglect available federal and state tax benefits by erroneously depreciating their entire investment in constructing or acquiring a building over 39 years. To do this correctly, one must hire an experienced engineer with a thorough understanding of construction finance.  The engineer will review all blueprints, architectural drawings, and electrical plans to isolate structural and mechanical components from those that are considered personal property in addition to identifying architectural and engineering fees that can be segregated.  The resulting cost allocation report will allow a taxpayer to:

  • Adjust the timing of deductions thus maximizing tax savings
  • Create a complete audit trail to resolve any IRS inquiries
  • Capture immediate retroactive savings on qualifying properties
  • Reduce real estate tax liabilities significantly

Property Tax Reduction

Probably the most frustrating bill that comes each year (or in some cases, twice each year) is the property tax bill. As of this writing, our studies indicate the average Restaurant in the United States is being overcharged by 10% on their property taxes. There are many reasons Restaurants are overcharged but mainly it is the result of improper assessments by the municipality. If you own a Restaurant and are paying property taxes over $50,000 per year, you should have a review completed on your facility. Reductions in this area are direct to your bottom line!

If you have not had a thorough review on your facility, especially as it relates to the areas of Property Cost Allocation, and Property Tax Reduction, you are likely losing money that should remain in your pocket.

For A/E/C Companies, Finding New Profit Centers is a Must

“Profit Center”, it’s the new buzzword being tossed around like a football across corporate America. It sure sounds good, doesn’t it?  Of course it does, who doesn’t like profits? Unfortunately saying the words “Profit Center” and actually having one are two different ball games.

To put it simply, a Profit Center is defined as, “The branch or division of a company that creates profits individually and separately from the main organization.”

There are essentially two methods of creating a profit center for your organization. First, you can offer a new service that creates a profitable revenue stream.  Second, a cost center can turn into a profit center by selling those administrative “cost of doing business” services to other firms. As Management Professor William E. Halal so eloquently stated to USA Today Magazine, “When a business firm becomes a corporate community of entrepreneurs who buy, sell and launch new products and services internally as well as externally, it gains the same creative interplay that makes market economies so advantageous.”

For the purpose of this article we will focus on creating a new profit center rather than converting a cost center into a profit center.  The easiest way to create a new profit center is to add service offerings that align with an existing client base.

For example, CPAs, A/E/C firms, and even most Contractors have an existing base of business clients and referral partners who own commercial property. Are they maximizing on the plethora of accumulated property data, let alone the hard-earned relationships they’ve developed? These are not cold leads or warm contacts but EXISTING CLIENTS who have already paid money for their services.  Failing to monetize an existing client base with value-added services is just bad business.

So, how do I create a new service offering and market it to my existing client base?  The easiest way to accomplish this is to partner with an organization that already has a profitable service on the market that would be a benefit to your clients.  Once a partnership is established, the next step is to effectively spread the word to your existing client base. Communicate how your new opportunities will benefit them and move them through the sales cycle. If you have done it right, your existing clients will thank you for your high level of client service. This truly becomes a “win-win-win” proposition!

Growth Management Group, LLC (GMG) provides custom services to business owners across the nation to increase sales, reduce cost, and procure specialized tax incentives. GMG also offers strategic partnership to firms looking to utilize their existing client relationships to generate new revenue streams.

For additional information contact: Growth Management Group, LLC (888) 705-5557, www.gmgsavings.com.

 

Senate Finance Committee Votes to Pass Landmark Bill Extending over $200 Billion in Tax Incentives

On August 2, 2012, Congress voiced the sentiment of the American business owner by introducing major tax incentive legislation. The Family and Business Tax Cut Certainty Act of 2012 is bipartisan legislation extending dozens of tax- cuts that have expired or are scheduled to expire at the end of this year. This is the best news possible for millions of companies across the nation.

Highlights of the Bill

  • Renewal of the Section 41 Research & Development Tax Credit
  • Reinstatement of Hiring Incentives / Worker Opportunity Tax Credits
  • Updated Alternative Minimum Tax (AMT) relief
  • Property Cost Allocation Extensions – Qualified Leasehold Improvements
  • Updated Alternative Minimum Tax (AMT) relief
  • Energy Incentives

Research and Development Credit

The bill extends for two years, through 2013, the research tax credit equal to 20 percent of the amount by which a taxpayer’s qualified research expenses for a taxable year exceed its base amount for that year and provides an alternative simplified credit of 14 percent. The bill also modifies rules for taxpayers under common control and rules for computing the credit when a portion of a trade or business changes hands. Based on preliminary estimates, a two-year extension of this proposal is estimated to cost $14.3 billion over ten years.

Work opportunity tax credit

This bill extends for two years, through 2013, the provision that allows businesses to claim a work opportunity tax credit equal to 40 percent of the first $6,000 of wages paid to new hires of one of eight targeted groups. These groups include members of families receiving benefits under the Temporary Assistance to Needy Families (TANF) program, qualified ex-felons, designated community residents, vocational rehabilitation referrals, qualified summer youth employees, qualified food and nutrition recipients, qualified SSI recipients, and long-term family assistance recipients.

Empowerment zone tax incentives

The bill extends for two years the designation of certain economically depressed census tracts as Empowerment Zones. Businesses and individual residents within Empowerment Zones are eligible for special tax incentives.

Cost Allocation

15-year straight-line cost recovery for qualified leasehold improvements, qualified restaurant buildings and improvements, and qualified retail improvements. The bill extends for two years, through 2013, the temporary 15-year cost recovery period for certain leasehold, restaurant and retail improvements, and new restaurant buildings, which are placed in service before January 1, 2014. The extension is effective for qualified property placed in service after December 31, 2011.

Extend AMT relief to 2013

Currently, a taxpayer receives an exemption of $33,750 (individuals) and $45,000 (married filing jointly) under the AMT. Current law also does not allow nonrefundable personal credits against the AMT. The proposal increases the exemption amounts for 2012 to $50,600 (individuals) and $78,750 (married filing jointly). The modified proposal would also increase the exemption amounts for 2013 to $51,150 (individuals) and $79,850 (married filing jointly). The proposal also allows the nonrefundable personal credits against the AMT in both 2012 and 2013. The proposal is effective for taxable years beginning after December 31, 2011. Based on preliminary estimates, a two- year extension of this proposal is estimated to cost $132.2 billion over ten years.

Energy Investment Credit 

Under current law, facilities that produce electricity from solar facilities are eligible to take a thirty percent (30%) investment tax credit in the year that the facility is placed-in-service. Facilities that produce electricity from wind, closed-loop biomass, open-loop biomass, geothermal, small irrigation, hydropower, landfill gas, waste-to-energy, and marine renewable facilities are eligible for a production tax credit for electricity produced over a ten-year period. The investment tax credit is better for small and offshore wind facilities. The bill would allow facilities qualifying for the production tax credit to elect to take the investment tax credit in lieu of the production tax credit for facilities that begin construction by the end of 2013.

What does it all mean?

If you own a business or commercial real estate, it is time to review what credits are available to you. The Senate has enacted significant legislation that is geared toward providing incentives to U.S. based businesses. If you fall into this category, it is time to investigate this new bill in detail.

 

Building, Purchasing or Renovating a Hotel or Motel? Read This First!

If you haven’t heard, property Cost Allocation (aka Cost Segregation) is back with a vengeance!

A cost segregation study is an essential fiduciary component when building, purchasing or renovating a hotel or motel.  Hotel owners and operators who do not work with a qualified expert to perform a cost segregation analysis will fail to take advantage of significant tax benefits!

What Benefits?

Cost Segregation is an engineering based tax analysis in which certain non-structural components of a building are broken out and allocated to a shorter life class thus depreciating them at an accelerated rate.  This process reduces a taxpayer’s federal and state taxable income.

Examples of personal property for hotels would include:  carpeting, most other flooring, decorative lighting, cabinetry, dedicated electrical and plumbing systems, power generators, security systems, wifi/internet cabling, parking lots, curbs, sidewalks, landscaping, fountains and more.

All hotels and motels have substantial areas requiring daily maintenance and frequent updating due to use.  For example entries, lobbies and hallways are notorious for having carpeting and flooring commonly replaced every 3 to 4 years.  Most depreciation schedules will reflect all assets being depreciated over 39 years because this is the simplest way, however not the method that provides the most befit to the owner or operator nor is it tax compliant.

Cost Segregation fixes this problem because it applies MACRS to those short life assets thus accelerating the depreciation and reducing the owner or operators income tax burden.  What is the benefit?

  • New purchase or construction will result in increased cash flow in the first 6 years
  • Owned for 5 or more years qualifies for all unrealized depreciation carried forward into the current tax year
  • Purchased or constructed from January 1, 1987 – all improvements and renovations will qualify based on individual completion dates

In most cases the ROI for hotel and motel owners engaging in cost segregation is very high.  Typically they can see a 200% return on investment.  The standard fee that a hotel or motel owner can expect to see when engaging a cost segregation firm should be between ten and twenty thousand dollars per building.  The fee is dependent on several factors:  size of property, quality of construction, location, availability of construction documents, closing statements and more.

In summary, a Cost Segregation Study performed on a hotel or motel can provide significant immediate and long-term tax savings. Even properties purchased years ago can capture benefit.  Any hotel or motel whether purchased, constructed or renovated costing in excess of $500,000 should consider this service.