William and Patricia have been actively investing in rental real estate throughout their careers, progressively trading up from single family homes to small multi-unit properties. Their latest acquisition is a new $10 million, 20-unit luxury apartment complex in Southern California that represents the culmination of their hands-on investing journey. To maximize the after-tax returns on the project and rapidly recoup their investment, William and Patricia engaged United Tax for proactive tax planning. After careful analysis United Tax recommended that they get a cost segregation study and accelerate the depreciation benefits of their investment property.
Cost segregation involves categorizing components of a residential rental project like William and Patricia’s into assets eligible for accelerated 5, 7, or 15-year depreciation schedules, versus 39 years for the whole building. United Tax uses both engineers and CPAs to identify items qualifying for the shorter depreciation lives.
The analysis of the apartment complex’s construction elements, interior finishes, amenities, and systems yielded over $700,000 in first-year depreciation deductions, slashing William and Patricia’s projected tax liability by 25%. In total, the cost segregation strategy is projected to generate more than $1 million in tax savings for William and Patricia over the lifetime of the property as additional assets fully depreciate.
Beyond identifying opportunities for accelerated depreciation, United Tax also provided William and Patricia with complete fixed asset sub-ledgers, basis documentation, and placed-in-service analytics to integrate the segregation with their tax records. We assisted in reporting the impacts across their financial statements and rental property tax return to substantiate the powerful deduction.
William commented, “We’ve invested in every one of our rentals as if it was our last. This complex represents the culmination of that philosophy. United Tax enabled us to maximize the tax incentives on the project so we can enjoy the returns we’ve earned through years of hard work and disciplined investing.”
Achieving Cost Segregation Tax Saving For Your Own Real Estate Investments
At United Tax, our real estate tax specialists help investors like William and Patricia achieve their dreams through tax optimization. Please contact us to tap into the cash savings from cost segregation and other incentives on your next acquisition or development project.
