Federal Tax Reduction - Overview

Cost Segregation Reduces and Defers Income Taxes

Cost segregation studies conducted by the nation-wide leader O’Connor & Associates exceed the IRS standards for a quality study to reduce federal income taxes and pass IRS audits. We can conduct a valuation or cost segregation study or provide a preliminary estimate within 24 hours, allowing you to file an amended return later in the year.Our estimates of potential savings are often deciding factors for clients who delay their filings.

Cost segregation can reduce federal income taxes for owners of commercial or multi-family real estate by correctly calculating real estate depreciation. Increasing depreciation improves the tax benefits of commercial and multi-family properties by affecting tax reduction and deferring the payment of federal income taxes.

Range on Year 1 Tax Savings
(100,000-500,000 sq. ft. property size)
$35,500 – $160,000
$19,240 – $96,200
$36,500 – $182,600
$10,800 – $54,000

Typical first year tax savings are 4:1 to 50:1.

Cost segregation is a conservative, IRS-defined approach implemented by our professional real estate appraisers to update depreciation schedules for commercial properties and correct component allocation, ultimately reducing your federal incomes taxes. Utilizing appraisers allows O’Connor & Associates to offer considerable cost efficiencies to this process. Our fees are typically one-half those charged by non-appraisal firms for comparable commercial properties.

Clients have saved over $100 million as a result of cost segregation studies prepared by our appraisers. We use IRS guided process for gathering data, calculating the market value of components which can be segregated and compiling results into a report. After performing thousands of reports, our results have not been revised in the handful of related audits.

Effective. Cost segregation is the most accurate way to depreciate improved commercial property acquired or built after 1986 and one of the more effective methods to reduce federal income taxes. When using this approach for federal tax reporting, the depreciation of certain commercial property improvements and components may be reflected in shorter-life recovery periods. Depreciation is the primary non-cash tax deduction. Net income is significantly affected by reducing federal taxes when selected improvements are depreciated over 5, 7 or 15 years, rather than 39 years for commercial property and 27.5 years for apartments. Reducing the depreciation life for components increases annual depreciation, and effects reduction in federal income taxes.

Catch-Up Depreciation. Cost segregation allows you to “catch-up” previously under-reported depreciation without filing any amended tax returns. All “catch-up” depreciation can be utilized in the tax return filed after obtaining a cost segregation study, without filing any amended tax returns.

Affordable. O’Connor & Associates pioneered the use of real estate appraisal specialists to value eligible commercial property components according to the IRS Cost Segregation Audit Techniques Guide. Using standard accepted methodologies, our appraisers’ analytical and time efficiencies translate to cost effective fees for the resulting report.

Our modest fees magnify the year-one payback ratio and make cost segregation cost effective for more owners. Year-one income tax savings are almost always at least two to four times our fee. In come cases (for owners who have owned property for over 10 years), year-one savings were more than 100 times our fee.

Our low price point opened the door to a higher level of tax deductions for commercial properties with as little as $500,000 in building improvements.

Accountant Friendly. Most importantly, our advisors and appraisers interact with the client’s accountant or tax advisor throughout the process. By partnering with the accounting profession, we apply cost segregation to a breadth of applications for tax savings on commercial property, even when REITs, partnerships, corporations or 1031 Exchanges are involved. Owners of older commercial properties can report prior years’ non-depreciated components and realize a significant reduction in taxes, without filing an amended return.

O’Connor & Associates has 34 state-licensed appraisers who have inspected sites and calculated costs for thousands of commercial properties across the nation. We can prepare a thorough report to document the total amount of depreciation you are entitled to report to the IRS (5, 7, 15, 27.5, 39-year commercial property) as well as the land value. Your CPA will welcome the backup documentation!

Utilizing a cost segregation study saves federal income taxes immediately and in the future. Let O’Connor & Associates conduct a cost segregation study on your commercial property for a nominal flat fee. You can achieve substantial results with minimal risk.

Call Lester Langdon for a special introduction to O’ Connor and Associates