4 Things To Know About Saving Money at Tax Time With a Cost Segregation Study-Peter J. Burns III

Property owners who utilize Peter J. Burns III’s innovative process for doing “cost segregation” at tax time are eligible for big-time savings. It’s estimated there are 91 million buildings qualified for a cost segregation study. That means that as much as $500 billion of potential savings are on the table, according to Peter J. Burns III.

Obviously, cost segregation—which is a little-know process that’s guided by Internal Revenue Service guidelines—is underutilized. Is it for you? Can you save money by doing a cost segregation study? Let’s look at the definition of the process and delve into how it works.

What is Cost Segregation?

Under United States tax laws and accounting rules, cost segregation is the process of identifying personal property assets that are grouped with real property assets, and separating out personal assets for tax reporting purposes.  

In other words, cost segregation is a tax savings tool that allows businesses and individuals to increase cash flow by accelerating deductions and deferring federal and state income taxes.

What is a Cost Segregation Study?

To initiate a cost segregation study, a certified third-party identifies, values and separates depreciable personal property. A certified analyst will appraise non-structural items (things like carpet, wall coverings, etc.) and adjust the scheduled depreciation.

The result? Acceleration of depreciation can lead to huge tax savings in the early years of the life cycle of a real estate property. This allows a property owner to catch up on savings that result from the depreciation adjustment.

It’s relatively simple. Under standard, straight-line depreciation, the default tax life on a commercial building is 39 years. Cost segregation professionals seek to identify the multiple pieces of personal property that can be placed on shorter—five-, seven- or 15-year—depreciation terms.

According to studies commissioned by Peter J. Burns III, doing a third-party-certified study for cost segregation typically results in 6 percent of the value of a building coming back in tax benefits. In one study, an $8-million rental villa returned $625,000 to the owner after cost segregation.

When Should A Cost Seg Study Be Done?

Real estate that qualifies includes properties like large homes, villas or hotels that you anticipate holding for at least a few years and were purchased, constructed or remodeled after Jan. 1, 1987.

It’s best to have a study completed the year the building or improvements are placed in service. However, IRS Revenue Procedures allow taxpayers to “catch up” on the depreciation that was not claimed when the property was placed in service, without amending prior years’ tax returns.

In addition, the IRS allows for the “catch up” period all in the first year—rather than over four years, when the Revenue Procedure 99-49 was first introduced.

Should You Use an Expert to Conduct a Study?

Absolutely. A cost segregation study must be performed by a trained Cost Segregation specialist – not a Certified Public Accountant. 

At HL Cost Seg, our certified cost segregation study professionals have the expertise in tax law, cases, and rulings on cost segregation. Other specialties include real estate development and construction experience—to maximize your tax savings. Our company will work with your advisors to help you take advantage of this extremely viable tax savings solution.

Peter J. Burns III’s HL Cost Seg is a subsidiary of HL Villas and operates in conjunction with the financing arm of the business. The company has partnered with the leading cost segregation company in the industry, Cost Segregation Initiatives, LLC.

Some villa and hotel owners are eligible for a free Cost Segregation Study!

Cost Segregation Initiatives, LLC performs just one function…cost segregation. CPAs are on staff but this is not a CPA firm. (Note: Unlike some competitors, the company is not out to poach business from CPAs. We’ll work in conjunction with CPAs, not against them.)

Cost Segregation Initiatives, LLC was established to provide comprehensive, professional cost segregation studies to our clients. The team has more than 15 years of cost segregation experience and more than 35 years of tax preparation and planning experience.

Drop us a line at this link to find out how cost segregation can save you money at tax time!

Peter J. Burns III

Cost Segregation: What It Is How Peter J. Burns III Can Save You Money at Tax Time

Entrepreneur Peter J. Burns III didn’t invent cost segregation—but the Southern California-based entrepreneur has innovated this process, which can save property owners thousands of dollars at tax time.

Burns has also identified a simple way that cost segregation can be used to boost the often-unenviable task of charitable fundraising. In fact, cost segregation is a win-win for both donors and charitable organizations looking to raise money.

But first, what is cost segregation? It’s a method of reclassifying components and improvements of commercial and residential real estate. Using Internal Revenue Service guidelines, cost segregation results in reduced tax liabilities and increased cash flow—for both owners and lessees.

To initiate cost segregation, a third-party-certified study identifies, values and separates depreciable personal property. A certified analyst will appraise non-structural items (things like carpet, wall coverings, etc.) and adjust the scheduled depreciation.

The result? Acceleration of depreciation can lead to huge tax savings in the early years of the life cycle of a real estate property. This allows a property owner to catch up on savings that result from the depreciation adjustment.

It’s relatively simple. Under standard, straight-line depreciation, the default tax life on a commercial building is 39 years. Cost segregation professionals seek to identify the multiple pieces of personal property that can be placed on shorter—five-, seven- or 15-year—depreciation terms.

According to studies commissioned by Peter J. Burns III, doing a third-party-certified study for cost segregation usually result in 6 percent of the value of a building coming back in tax benefits. In one study, an $8-million rental villa returned $625,000 to the owner after cost segregation.

Cost segregation is a 100-percent legal process guided by IRS methodology. The IRS publishes guidelines for a cost segregation study on its website.

IRS guidelines allow this technique to be applied to newly built and existing buildings. However, the building must have been placed in service after 1987. The number of years owned by the current owner, prior renovations, and future renovation plans are some of the considerations used to determine whether a cost segregation study makes economic sense.

The technique has been widely used since 1997 as a result of two landmark tax court cases in which both Walgreens and Hospital Corp. of America prevailed against the IRS. Traditionally, engineering departments in Big Four CPA firms have used cost segregation with their large clients.

The modern application of cost segregation can be traced to those 1997 court cases—but it was Peter J. Burns III, who was serving as an adjunct faculty member at the Barrett Honor College at Arizona State University, who first tied the practice to other business ventures in 2005.

Using Cost Segregation for Innovative Charitable Fundraising

Seeking charitable donations for even the worthiest organizations is often an uphill battle. Nobody likes to be in the position of holding out their hand for money.

Tradition techniques include cold calling and letter-writing campaigns that detail why donations are important for the worthwhile mission of the charitable organization. Whatever method you use to seek funding, it’s often a tough sell with your donation base.

However, what if you can guide wealthy patrons into a simple way to create huge tax savings on their real estate properties? It’s logical that they can, in turn, donate a substantial percentage of those savings to your charitable organization.

It’s estimated there are 91 million buildings eligible for a cost segregation study. Yet, only five percent have undergone the process. According to Peter J. Burns III, that means that as much as $500 billion of potential funding for charitable organizations is still on the table.

It’s actually a simple transaction! Charities offer to commission a cost segregation study for donors—in return for a sizable portion of the resulting tax savings. This allows wealthy donors who own property to generate funds for the charity of their choice at no out-of-pocket expense.

 If you’d like to find out more about this innovative process to do charitable fundraising, reach out to Peter J. Burns III, who can help match prospective donors with qualified cost segregation professionals.

Peter J. Burns III