Real Estate

5 Reasons Cost Segregation is Important

By | Cost Segregation, Real Estate, Tax, Tax Incentives | No Comments

Higher profitability, lower tax liability, and increased cash flow are the three primary factors which make cost segregation so important. In addition, lower taxes and increased cash flow mean plans for the business can be crystallized and implemented more easily. Cost segregation is, therefore, part of the bedrock of success for real estate investors and developers.

Cost Segregation in Practice

Constructing, renovating, remodeling, and acquiring real estate for commercial use typically result in depreciating those assets over a 27.5- or a 39-year period. The timescale depends on whether they are residential (apartment blocks, single family homes, etc.) or commercial (shopping malls, hotels, warehouses, etc.)

By identifying specific, and IRS-approved, components that can be segregated from the rest of the real estate they can be allocated to accelerated depreciation categories. The three primary categories are land improvements, specific additions to the building’s core structure, and personal property. Those components may then be written off in 5, 7, or 15 years.

It is possible, therefore, to reduce income tax liability by up to $70,000 for each $1,000,000 of building cost basis owned. Specific savings are based on a detailed cost segregation analysis applying IRS-approved standards.

Making Use of Cost Segregation in Business

1. Simple Depreciation Acceleration

When a piece of real estate is constructed or acquired, there is usually a minimum time span before its value will increase enough for it to be sold at a profit. Maintaining the property generates costs; those costs should obviously be less than the corresponding income. Property and income taxes become payable. The amount of tax due is usually reduced by the 27.5- or 39-year depreciation write-off approach.

Cost segregation enables tax liability to be reduced. By shifting depreciation of approved components from 27.5 or 39 to 5, 7, or 15 years, that accelerated depreciation reduces each year’s tax liability. By reducing tax payments, cash for running costs, and capital for further investment is automatically generated. It does not have to be borrowed, attracted by exchanging company stock for new investment, or for corporate plans to be delayed.

2. Partial Asset Disposition

If the property is being renovated, then some components will be removed and replaced with new and improved components. The old and the new components will be depreciated. Unless partial asset disposition (PAD.) is taken, double depreciation of those old and new assets accumulates. This will impact recapture tax calculated at ultimate sale. By having previously segregated components into different asset classes, the recapture tax is reduced.

3. More Availability Means Greater Benefit

Cost segregation was once used, primarily, by major corporations. Today, properties with a cost basis in the hundreds of thousands as opposed to the tens of millions of dollars now qualify for accelerated depreciation. This, on its own, makes the principle both viable and important for the smaller investor or developer.

4. The Time Value of Money

A simple advantage of applying a cost segregation strategy is that money available today is worth more than ultimate profit made available at eventual disposition. By accelerating depreciation, even by a small amount on lower-value properties, cash flow improves. That cash becomes available for both running costs and for growth. When used for growth by investing in additional properties, components in those new properties can also be subject to accelerate depreciation, thus magnifying the benefit.

5. Cost Segregation and 1031

Relinquishing and acquiring real estate benefits from capital gains tax deferrals when managed via a 1031 Exchange. The increased profit generated by segregating costs is not, therefore, necessarily subject to immediate taxation payable on sale. All the tax can be deferred.

Personal as well as corporate investors can, by making use of The Tax and Jobs Act legislation, eventually avoid paying that tax if, when they move out of active property ownership, they reinvest in approved development zones. After an amount of time, the deferred tax is forgiven. The benefits of cost segregation can, therefore, be “held” indefinitely, and the benefits of recent legislation are increased.

The Takeaway

Cost segregation is important. It enables a business’s profit to increase and cash flow to improve by accelerating the depreciation on real estate components. The immediate and long-term benefits make it a crucially important strategy for real estate investors and developers. Completing cost segregation analyses correctly and to IRS standards demands competence in specific areas of real estate, and experience in tax law. To discuss how you can make use of this strategy, please click here to contact us.

tax credits real estate

4 Ways Your Real Estate Company Can Save on Taxes

By | Real Estate, Tax Credits | No Comments

For independent real estate agents, it can be difficult to find the time to manage your finances. For many real estate agents who run their own agency, taking care of your clients, and developing new leads, can eat into your time. You may find tax preparation moving down your priority list. However, you do not want to make the mistake of being surprised when tax season rolls around.

Taking the time to look at your finances now can help you to make sure that everything is in order and that you are taking advantage of all possible tax deductions available to you when April arrives. Finding the right tax deductions can help save your business thousands of dollars each year. To help get you started, here is a look at just a few ways that your real estate company can save money on taxes this year:

Commissions Paid

There are several tax deductions that you can take as a real estate agent. An important one to keep in mind is that you can deduct commissions that you have paid to employees or business partners. As a business owner, paying commissions is a cost of doing business, and the IRS generally considers commissions paid to be a fully deductible business expense.

This is an important deduction to remember to take as it can represent significant money saved or a lot of money left on the table if you do not take advantage of this deduction. When you go to fill out your tax paperwork, deductions for commissions paid would be placed on your Schedule C tax form on the 10th expense line.  

Marketing Expenses

As a small business owner and sole proprietor, it is likely that you invest a significant amount of money in marketing and advertising your business. Even with the advent of cost-effective marketing methods such as creating social media accounts for your business, it is likely that you still spend a large amount of money marketing your business and listings by purchasing signs, flyers, and advertisements in local papers. Many real estate agents also outsource their social media and content marketing to experts, which is an added expense.

Fortunately, marketing and advertising costs can also be deducted as a business expense. Even money spent developing your website and running digital ads on social media and Google can be deducted as marketing expenses. These deductions can be made on Line 8 of your Schedule C tax form.  

Fees, Licenses, and Memberships

A common expense for independent real estate agents is annual fees for things such as license renewals, professional association memberships, and multiple listing service (MLS) dues. Fortunately, many of these fees can be deducted as a cost of doing business. Money paid towards premiums for general business insurance and errors and omissions insurance are also both fully deductible business expenses as well.

It is important to keep track of everything that you spend maintaining your business and professional memberships. This will help ensure that you take advantage of all tax deductions available to you.  

Deduct Travel Expenses

Of course, unless you are lucky enough to have only local clients within a few miles of your home or office, it is likely that you do a lot of driving, and the miles can add up fast. This can mean spending more money fueling and maintaining your car than the average driver. Fortunately, you can deduct $0.575 per mile you drive for your business in 2020. You may also be able to deduct maintenance and repair costs for your vehicle as well. 

Keeping track of all the tax deductions and credits available to you as an independent real estate agent can quickly become overwhelming, and it is easy to forget a credit or deduction. Contact us to learn how Incentax’s streamlined process can help you to identify and maximize all the tax credits available to your real estate company. This can help to significantly reduce your tax liability.  

mixed-use property

6 Advantages to Mixed-Use Properties

By | Real Estate | No Comments

Changing Demographics and Changing Needs  

Every year the population in America’s most densely-packed cities continues to rise at a steady rate. People move into city centers in search of increased economic opportunities but often times at the cost of overcrowding. Making room for both businesses and people is a task akin to fitting a square peg in a round hole. Urban planners are tasked with making the whole thing work while investors and property owners seek the highest possible return on investment.

Mixed-use properties have seen a surge in popularity in recent years, and are a good solution to the problem of economic growth in highly populated areas. We’re going to look at both the societal and economic advantages to owning or developing a mixed-use property.  

What is a Mixed-Use Property?  

A mixed-use property combines the zoning requirements of both commercial and residential properties all in one. A mixed-use property is one with space specifically apportioned to both residential housing and commercial business space. Both types of zoning occur on the same property, often in different sections that are either adjacent to one another or vertically aligned with one another. For example, a mixed-use property may feature a restaurant, entertainment venue, or storefront with apartment space above.   

Other types of property zoning include:

  • Industrial
  • Agricultural
  • Historic
  • Rural
  • Aesthetic

What are the Advantages of Using Mixed-Use Properties?  

Mixed-use properties carry with them a set of culturally relevant and economic advantages. These factors often go hand-in-hand and influence one another.   

Stimulating growth in dense, urban regions  

Developing a mixed-use property is the perfect solution for real estate developers trying to maximize upon, and take full advantage of, the limited urban space available to them.  

It’s no secret that some of the most desirable real estate exists in heavily packed city centers. Real estate like this represents a significant economic investment. With Urban centers being so highly developed already, savvy investors and real estate professionals must search for ways to increase economic growth.  

Reduction of pollution and traffic  

Mixed-use properties also have a positive effect on the environment. This type of zoning more easily lends itself to foot traffic, neighborhood business, and a boost to the locally-driven economy. With all your amenities located adjacent to your home, the tangle of traffic is greatly reduced, as are hazardous carbon dioxide emissions due to a lower volume of vehicles requiring access.  


No discussion of mixed-use properties is complete without referencing convenience. The popularity of mixed-use property has gained steam on both ends of the age spectrum. Millennials and baby boomers alike find incredible value from the self-contained environment provided through mixed residential and commercial zoning. Mixed zones allow people with reduced or fixed incomes to stretch their dollars further by placing amenities in a close, accessible radius.   

Return on investment  

The advantages to a mixed-use property aren’t just social. Developers who build properties with both consumer and residential tenants in mind stand to increase the revenue that they receive from rent by a significant amount. Landlords are able to rent to businesses in many cases without the added consideration of rent control. This makes mixed-use properties more desirable because they represent a greater return on investment than single-use zoning does.  

Maximizing the local economy  

Keeping money circulating is central to any type of economy. If money and wealth are allowed to stagnate, that economy will fail. Tightly-knit communities that feature mixed-use properties encourage the local economy to flourish. Residents of mixed-use properties are more likely to spend their hard-earned dollars in local establishments adjacent to where they live than they are to travel outside of their communities. Business owners stand to profit greatly by investing in mixed-use buildings and thus tapping into strong local economies.  

Tax advantages  

Mixed-use properties also come with a significant tax advantage. Business owners are allowed to deduct depreciated assets to lower their tax burden. Commercial and residential properties depreciate at different rates. Commercial properties depreciate over a 39 year period, whereas residential properties only takes 27.5 years to fully depreciate. Under the correct criteria, a mixed-use property which features both commercial and residential sections is allowed to depreciate at the residential rate, adding a significant monetary incentive to wise investors.  

Consulting With Incentax  

Given the increasingly dense and populous nature of America’s urban centers, mixed-use properties just make good sense from a cultural, environmental, and economic point of view. There are numerous advantages that all point to levels of added value. Mixed-use properties expand the value of real estate in the areas of the country where the greatest concentration of wealth is centered. Incentax can help you discover additional avenues of tax advantage that come along with developing and owning mixed-use properties. Please contact us to schedule your tax consultation today.