Depreciate Property Improvements Correctly With Cost Segregation

Writen by Patrick O’Connor

Most commercial building owners are grossly overpaying federal income taxes because they are not depreciating their property as quickly as they should. A cost segregation study allows property owners to both defer and reduce federal income taxes. When properly performed by an appraiser with expertise in cost segregation, this is a conservative tax planning tool which reduces federal income taxes by properly allocating the cost basis between land, 5 year, 7 year, 15 year, 27.5 year and 39 year property.

Cost Segregation Study Benefits
Benefits of a cost segregation study are substantial, immediate and enduring. Year 1 federal income tax savings are typically at least two times the cost of a cost segregation study. In many cases they are five to fifty times the cost of the study. The present value of federal income tax savings for a property held for ten years are typically at least ten times the cost of the study. In many cases, the present value of tax savings as much as 30 to 50 times the cost of the report. The cost segregation study is only required once. Its cost is not recurring, but the benefits are recurring during the term of property ownership. A cost segregation study can also materially reduce local property taxes by separating real and personal property for newly constructed properties.

Detailed Example
Preparing a cost segregation study requires only a limited time commitment from the owner, perhaps 10 to 15 minutes. This limited commitment of time results in substantial tax savings, which are both conservative in approach and well documented. Some owners believe their accountant is properly segregating components into the proper classifications. Many accountants cannot thoroughly research this highly specialized field to understand the myriad of items which can be segregated and are inadvertently overstating their client’s income tax liability. Furthermore, not obtaining a cost segregation study increases exposure in case of an audit since there is no clear audit trail. A cost segregation study prepared by an appraiser with expertise in land valuation, construction costs and market value clearly documents each of these items. Further, a cost segregation expert can almost certainly sharply increase allowable depreciation.

Who Benefits from a Cost Segregation Study
If you own real estate and pay federal income taxes or expect to during the ownership period for the property, you will benefit from the results of a cost segregation study. This is true whether the ownership to the real estate is titled in a corporation, limited partnership or limited liability corporation. For syndicators, a cost segregation study is appropriate if limited partners will receive material net taxable income during the holding period even if the general partner does not currently pay federal income taxes. The cost segregation study will increase depreciation shield, thereby decreasing and deferring federal income taxes for the investors.

Decreasing and Deferring Federal Taxes
Since a cost segregation study decreases and defers federal income taxes, let’s review the long term impact of this deferral. When the property is sold, capital gains tax will be due if the owner does not enter into a 1031 exchange. However, capital gains tax rates are typically 20% 25% for high net worth individuals, while the ordinary income tax rate is 35%. In addition, the deferral during the ownership period has material benefits because of the time value of money. All investors would much rather pay a 20% 25% tax rate when an asset is sold as opposed to paying a 35% tax rate today.

When Should You Obtain A Cost Segregation Study
The best time to obtain a cost segregation study is when you build or purchase a property. Documentation is most readily available for performing a study and a contemporaneous property inspection can be performed to best document results. However, there are options to perform a cost segregation study for property which has been developed or purchased previously.

Elements of Preparing a Cost Segregation Study
The appraiser starts by gathering documents from the property owner and performing a site visit. As necessary, depending on the special use property found during the site visit, the appraiser would confer with tax counsel and review relevant tax court decisions. For newly constructed properties, most of the costs detail can be obtained from construction draws or invoices from contractors. For existing properties, the appraiser performs a quantity take off for 5 year, 7 year, and 15 year property and estimates replacement cost using recognized sources. The appraiser then values land, 5 year, 7 year, 15 year, 27.5 year and 39 year property based upon inspection, analysis and IRS regulations and court rulings.

Does this only apply to large owners?
Both large and small owners of income property or owner occupied commercial property can benefit from a cost segregation study. Commercial properties with a cost basis of at least $200,000 will likely see a material benefit in excess of the cost from a cost segregation study. In fact, owners of single family rental homes can probably achieve worthwhile benefits by obtaining a cost segregation study.

Qualifications to Consider when ordering a Cost Segregation Report
The ability to value land and real property are critical elements when engaging a tax reduction expert to perform a cost segregation study. In addition, it is essential they have a detailed understanding of rules for classifying 5 year, 7 year, 15 year, 27.5 year and 39 year property. The ability to justifiably increase short life depreciation materially increases the benefits of a cost segregation study. While most accounting professionals have a rudimentary understanding of the 5 year, 7 year and 15 year property classifications, few have a detailed understanding of this highly specialized niche. Be certain the report provider has scrutinized both the federal income tax code and the meaningful tax court cases to allow you to maximize your depreciation and minimize your federal income tax liability.

Patrick O’Connor, MAI, is president of O’Connor & Associates. The firm, in business since 1974, specializes in state and federal tax reduction services, real estate appraisals and research and consulting nationwide. With offices in Houston, Dallas, Los Angeles and Newport Beach, the firm employs more than 130 people. Patrick O’Connor is frequently acknowledged by national publications as a respected source of information on real estate trends. http://www.cutmyfederaltaxes.com

Cabin Rental a Way to Audition a Vacation Home

Writen by Eriani Doyel

If you have thought about a cabin rental for your next vacation, you may be in for a very pleasant surprise. Not only are there many cabins for rent available, you can find them in every shape and size and price range. Nearly every mountain retreat has cabins for rent and you can also find them in other wilderness and beach areas as well. They can be found as time share rentals and also one time use rentals. If you are considering buying into a time share or purchasing a cabin, a cabin rental is an excellent way to see if this is the right investment for you before you buy.

The first thing you will need to do is to assess what your rental needs will be. How many people will be using the cabin? Are you going to be using it for a family reunion? Will you need more than one cabin? You can find town home and cabin rental available for groups as small as one or two people up to 20 or more people (in one cabin.) Do you want all of the modern conveniences in the cabin such as satellite TV, cable and internet, or do you want to get away from those things for a little while? As you assess your needs you can make a better decision about what type of cabin rental you will need.

The next thing that you will want to think about is the location of the cabin rental. Do you want to be near the beach or within a half hour drive of a metro area, or do you really want to rough it out in a rural, undeveloped area? If you want a place to really just relax and be away from it all, a cabin rental in the deep wilderness may be your best choice. But, if you want easy access to grocery stores, cultural activities, and medical facilities, look near a metro area. You will also need to decide if you want one in your home state, or in another location.

As you try out your cabin rental, you will be able to get a better idea if the cabin vacation is right for you. To many it is a very appealing way to get away from it all without the hassle of hotel reservations, planning activities, and eating out every night. Some people spend months at a time in their cabins. A cabin rental can help you to find out if this is you. But, you have to remember that you will also be in charge of all of the bills and the upkeep of a cabin if you own it and it is not a cabin rental.

If you would rather have someone else take care of all of the details of changing your sheets, cooking the meals and providing the social activities, it may not be what you are looking for. So, take it out for a test drive with a rental. You can find listings online, in magazines, or in the newspaper.

Eriani Doye writes articles about real estate and finance. If you would like more information about finding a cabin rental visit dotcabin.com

Best Time to Buy? Best Time to Sell?

Writen by Brian Block

When is the best time to buy? When is the best time to sell? I get asked these questions constantly everywhere I go. In short, the answer is that it depends on your individual circumstances. Each person has a unique personal buying or selling situation, whether starting a new job, facing rent increases, retirement, etc.

However there are certain seasonal trends that govern the real estate market. Traditionally, Spring is the busiest time in the housing market. This past Spring we experienced a very strong seller’s market with extremely low inventory and a bevy of buyers competing for those homes. Now, throughout the Summer, the inventory of available homes has steadily increased, providing more choice for buyers. The outlook for the upcoming Fall and Winter seasons remains strong. More properties on the market means that buyers have less competition for the same homes and may be able to get a better deal. In the late Fall and Winter, when inventories generally drop, homeowners who do decide to sell are more likely to capture the active buyers.

But the real answer to the question of timing is whatever makes the most sense for you financially. Homes are bought and sold every single day of the year, including weekends and holidays, so timing may be important but not necessarily crucial. What really matters and the question you should ask yourself is “Do I need to buy now?” or “Do I need to sell now?”

Brian Block is a Realtor with Re/Max Allegiance in Alexandria, Virginia. He is also a real estate attorney. He can be contacted at 703 626 0715. If you or anyone you know has real estate questions or is looking to buy or sell real estate in the Northern Virginia and Metropolitan D.C. area, contact Brian Block. For more information and to start your home search, visit his website at http://www.brianblock.com

The Different Types of Mortgage: Take Your Pick

Writen by B Shelton

The process of choosing which type of mortgage best fits your budget may seem mind boggling because there are several different types of mortgages available in the market today. You can narrow your choices down by educating yourself on how to make the right decision.

One important factor to consider would be the kind of interest that would be applied on your loan. In this light, there are two basic interests you can choose from: the fixed interest loans (where the schedule of payment remains the same for the life of the loan), and the adjustable interest loans (where, subject to limits on ceilings pre imposed by the government, payments increase or decrease on a regular schedule with changes in prevailing interest rates).

Among the hundreds of mortgage plans available, there are four more common ones most lenders offer, and each type can either have Fixed or Adjustable Rates. The four types of mortgage are:

1) Conventional: A “traditional” mortgage, mostly under $275,000 not directly insured by the Federal Government.

2) FHA: Designed for low to middle income borrowers and mostly first time buyers. This is under the Federal Housing Administration (FHA) a division of the U.S. Department of Housing and Urban Development (HUD).

3) VA: The Veterans Administration (VA) which insures (but does not fund) those qualified by military service. It offers lower down payment and lenient qualifications.

4) No Document Loans: Also known as no doc mortgages are usually offered to self employed people, those who do not wish to have their income or credit history checked or those with no credit history. This type of mortgage has a shorter application process, since there is no requirement for financial documentation. On the downside, the no doc mortgages are pegged at a slightly higher interest rates and are offered only by very fewer lenders because of the high risks involve.

Do not be overwhelmed by all these seemingly highly technical terms. It is really all so simple: if you want to procure a property of your own, you have to have money to purchase it with; if you don’t, you can avail of a loan that you pre qualify for.

There is yet another other type of loan that may be open to you, if you only dare to inquire. It is called the

5) Owner financed Loan: Don’t forget to inquire about the possibility of entering into this other option that would be kinder to your pocket. With this type of loan, a big amount of faith is in place between the buyer and the owner. A more considerate mode of payment could be arranged between the buyer and the owner, as institutionalized fees for borrowing from other sources of funding are not applied.

The owner financed loan could be a win win arrangement if the owner plays his card well. He has the option to take (or resell) the promissory note signed by the buyer to a third party (maybe to the bank or to any other lending institution) in exchange for a smaller lump sum now. He would, thereby, be transferring the liability of collecting from the buyer of his property the full amount pledged therein over time. By doing this, the owner may lose the interest over time on the direct loan, but he gets paid on his property already and he could use the lump sum for other prospective, income generating investment.

Whatever type of mortgage you choose from among the many types of mortgage available to you, it is best to go into it with your eyes open and your budget straight.

Brian Shelton makes home buying in the Dallas easy! Visit http://www.StopRentingDFW.com/

Depreciation

Writen by Luigi Frascati

There is a special and direct economic relationship in real estate between Time and Value: as land becomes scarcer and appreciates, the improvements on the land are subject to obsolescence and depreciate. Obsolescence is an economic variable used by governments, economists, appraisers and Realtors that reflects the fact that the building sited on a piece of land ages with time, just like me. And, unlike wine, a building that ages with time does not get any better, again just like me. No wonder that I am in real estate – but I digress.

There are two types of depreciation when it comes to real capital assets: physical and functional. And both physical and functional depreciation can be categorized as either curable or incurable.

[ ] Physical Depreciation

Physical depreciation represents the accumulated loss in market value caused by physical wear and tear since the date the building was completed. Physical curable depreciation refers to damage which can be corrected economically, and it includes such items as poor decorative conditions, broken fittings, outdated or worn out carpeting, faded or old paint, appliances not in a proper working order as well as aging roofs. On the other hand physical incurable depreciation includes wear and tear of structural members and foundations where repair or replacement is likely to involve significant cost. These two kinds of depreciation are treated differently. The dollar amount of the deduction required for physical curable depreciation is generally based on the required cost of carrying out the repairs. Conversely, the allowance for physical incurable depreciation is more difficult to estimate, with the principal cause of such difficulty lying in the determination of the remaining life of the building.

There is no precise way to estimate the cost of correcting physical incurable depreciation. Generally speaking the cost of this kind of corrections is so great that in terms of economics the structure should either be left in its present state or totally rebuilt. Governments tend to estimate the economic life of buildings in terms of straight line depreciation, but this is so merely because it makes the estimate of capital gains and losses, as well as their recapture, a little easier to determine from an accounting point of view. Appraisers and experienced Realtors, on the other hand, will tend to make an educated guess more often than not as to the value of the physical incurable depreciation based upon visual observation while economists will base it upon knowledge of regional comparable market data.

[ ] Functional Depreciation

This type of depreciation describes the loss of value caused by outmoded or inadequate design. Here too it is necessary to distinguish between curable and incurable functional depreciation. Functional curable depreciation includes items such as the cost of replacing old fashioned fittings, installing an additional bathroom or otherwise making alterations to the existing plan by, for example, creating new doorways and blocking old ones, or by following market trends such as enhancing the visual appearance of rooms with open layouts and light play. Again, the amount by which market value is reduced is in direct function of the cost involved in carrying out the necessary updates.

And, like before, the amount by which market value is reduced because of functional incurable depreciation is entirely a matter of judgment and cannot be determined with an arithmetical calculation. There are, of course, limits to what can be done to cure functional depreciation. For example, if an architectural style has gone out of fashion, nothing can be done and a higher factor of deduction will be applied. The opposite is true, of course, of plans that never go out of style. For instance, residential ranchers are always high on the list of demand and very much sought after by elderly and younger couples alike but for opposing reasons: a lack of stairways for the first and easy maintenance for the latter.

Luigi Frascati

Luigi Frascati is a Real Estate Agent based in Vancouver, British Columbia. He holds a Bachelor Degree in Economics and maintains a weblog entitled the Real Estate Chronicle at http://wwwrealestatechronicle.blogspot.com where you can find the full collection of his articles. Luigi is associated with the Sutton Group, the largest real estate organization in Canada, and is based with Sutton Centre Realty in Burnaby, BC.

Luigi is very proud to be an EzineArticles Platinum Expert Author. Your rating at the footer of this Article is very much appreciated. Thank you.

Daytona Beach Condos Supermarket

Writen by Kevin Kling

Today’s condo market closely resembles a food supermarket. The condo supermarket shelves are full with high quality goods and ready for the right buyer. Yes, the market has cooled, we all know this, but the difference is that the Daytona Beach condo supermarket will not spoil. These newly constructed condos that are now available are very impressive and perfect for a retiring couple or successful business man or woman. True luxury is waking up in the morning to the gentle sounds of the waves crashing on Daytona Beach. Nothing compares to reading the newspaper in the morning and enjoying the ocean views in your backyard. One condo that comes to mind is the newly developed Ocean Villas Condominium in Daytona Beach, Florida. The Ocean Villas will “knock your socks off” and impress the pickiest of buyers.

The oversized balconies at the Ocean Villas fill a void in condo construction. Balconies range from 500 600sq ft. The spacious balconies offer spectacular views and a true taste of Florida. You may not believe this, but parties can actually take place on the balcony with plenty of room for all your friends and family. The balconies are also appointed with electric grills with plenty of storage room below for grilling supplies. Other amenities at the Ocean Villas include, secured and controlled entry to the building, semi private elevators with garage parking, brand new state of the art fitness center with his and her saunas, a meditation garden for beachside relaxation, an oriental soak bath, a gigantic private club room that over looks the infinity edged pool and ocean, a business center, and much more.

The Ocean Villas floor plans include, The Avalon, The Carlton, The Diplomat, and The Bellaire. Every single condo unit at the Ocean Villas has views of the ocean and river. There are 3 bedroom 3 bathroom units, 3 bedroom 3.5 bathroom units, and 2 bedroom 2.5 bathroom units.

The Ocean Villas Condos are located in Daytona Beach Shores, Florida. This condo is located just south of Daytona Beach and just north of New Smyrna Beach. Shopping is only a short walk or drive away. Excellent restaurants surround this property and the nightlife entertainment is very enjoyable.

If you are shopping for a condo, don’t forget to search all the condo supermarket shelves. The newly constructed Daytona Beach condos are top shelf!

Kevin is a realtor

Attracting more buyers when selling your house

Writen by Larry Aiello

Remember when your parents told you that you should not judge a book buy its cover? Generally speaking, they are correct. But when it comes to home buyers judging a potential house for purchase, they very much will judge the inside by the way it looks on the outside. First impressions are very important.

So to get more potential buyers to get inside your house, you need to spruce up the outside. Here are some tips that will increase your house’s “curb appeal”, attract more visitors, and perhaps increase the value as well:

• Make sure the exterior paint is in good condition. Particularly by the doors and windows. If there is any paint that is cracked or peeling, it is a good idea to scrape it clean, and apply some fresh paint.

• Check the decks, driveways, porches, etc. If they are moldy, or dingy looking, a good power washing will enhance its appearance.

• Remove any unnecessary garden tools, toys, engine blocks, pet remnants, etc. You want to keep things as uncluttered as possible.

• Trim any tree limbs that are touching the house. Hedge any bushes that need a good hedging.

• Keep the lawn mowed as much as possible and get to those nasty weeds that you’ve been procrastinating about.

• Rake up and dispose of any old leaves.

• Brighten up the entry way with some flowers and potted plants including chrysanthemums and geraniums. Or any other attractive plant. Any of those famous home improvement stores have a good selection.

• Don’t forget about the evening “curb appeal” i.e. string some low voltage lighting along your driveway, sidewalks, etc. You may also consider a decorative street lamp or some other light fixtures.

So don’t forget about the all important first impressions when you are about to put your house on the market. Especially since we are now in more of a “buyer’s” market, as opposed to the past few years. Good luck in your house selling!

Larry Aiello is a mortgage professional in the Tampa Bay (Florida) area. If you are interested in purchasing a home in Florida, refinancing your existing mortgage, consolidating your debts, etc., then please visit his website at http://www.TampaMortgageConsultant.com

He is also an avid traveler and enjoys sharing his tips on Italian travel at http://www.Italian Link.com