Jerry Ferch
jerry@CutFedTaxes.com, Phone: 214-986-0920
Cost Segregation reduces taxes now because it reclassifies up to 50% of building costs from 39-year to 15-, 7-, or 5-year depreciation. When so much depreciation shifts to the first 5 to 15-years, depreciation, in the first year can be 3x to 10x times the straight line amount, yielding a big tax reduction. This situation of depreciation increase/tax decrease (versus straight line) lasts fifteen years, after which depreciation falls below 39-year straight line.
Based on the above, one may think, “If all Cost Segregation does is defer the taxes I will eventually pay, why bother?”.
Here’s why: Consider that Cost Segregation defers truly very large amounts of taxes far into the future (from 16 to 39 years). All of those deferred taxes end up being money that you get to keep and use to your benefit, kind of like a no interest loan from the government. Either through simple investing activities or through active use of the money to further build your business, this extra money will compound and the value of this nest egg will grow year after year. If you invest every tax reduction at a lowly 5% compounded rate, the invested proceeds will fund the payment of all deferred taxes when they come due AND there will still be a large amount of extra cash remaining. Here are examples of cash growth, based on real numbers from Cost Segregation work we’ve done:
| Building Type | Cost Basis | % 15, 7, 5 yr | Yr 1 Tax Cut | Value@10 yrs | Value@39 yrs |
| Medical Office Building | $14,700,000 | 29.5% | $198,584 | $1,048,810 | $3,188,494 |
| Manufacturing | $932,000 | 35.8% | $14,564 | $108,101 | $283,758 |
| Office Building | $84,000,000 | 32.1% | $94,316 | $763,369 | $2,094,207 |
| Restaurant | $2,600,000 | 41.5% | $102,193 | $389,624 | $1,126,378 |
| Self Storage Facility | $9,400,000 | 37.8% | $121,502 | $823,860 | $2,639,958 |
| Strip Shopping Center | $14,200,000 | 30.1% | $90,482 | $887,594 | $2,992,644 |
| Office/Warehouse | $8,076,752 | 35.8% | $69,262 | $591,139 | $2,639,679 |
Naturally, the above analysis is an exercise, since there are many places businesses may choose to put extra cash flow, depending on objectives and needs, but it does clearly show that Cost Segregation pays off handsomely. Prior to your Cost Segregation Study, we will give you a free, no obligation estimate. Also, with every Cost Segregation Study, we project expected changes in cash flow and illustrate how, if invested at 5%, the tax savings will fund extra taxes in later years plus yield substantial extra cash. For a report on how Cost Segregation drives extra cash flow growth for the life of a property, send an email with the subject “Cost Seg Wealth Building” to jerry@cutfedtaxes.com.