Tax Reduction (Disposals can result in a substantial tax reduction)

tax reduction are the results of tax deductions. tax deductions reduce taxable income but not directly reduce federal income taxes. For example, $100,000 of tax deductions reduces federal income taxes by $35,000 ($100,000 X 35%), assuming a 35% tax rate. The majority tax reduction require an outlay of cash (labor, material, supplies, utilities, etc.). A current period cash expense is not required for some property tax deductions and may not be required for a casualty loss.

A casualty loss can occur as a result of a flood, hurricane, tornado, landslide, or other natural disaster. The intuitive thought pattern is: “My $5,000,000 apartment complex sustained major damage totaling $1,500,000 in repairs and rent loss. Fortunately, I was fully covered for both physical damage and rent loss, apart from a small deductible.Clearly there is no casualty loss that will Generate tax reductionCorrect?”

Most real estate owners and investors believe the above statement to be true. Few investors claim casualty loss tax reduction the federal income tax code allows them. Next, let’s review the criteria for a casualty loss tax deduction and the thought process regarding purchasing property that has suffered a casualty.

Real estate owners suffer a casualty loss when the market value immediately after the loss plus insurance proceeds is less than the market value immediately before the loss. The complex issue is how to value the property immediately after the loss. Consider a 1-story suburban office park in Mississippi that suffered a 3-foot flood from Hurricane Katrina. Let’s further assume: 1) 8 feet of drywall needs to be replaced on the entire property to rebuild, 2) although the property was 90% occupied prior to the flood, the occupancy is expected to be only 5% while reconstruction is taking place, 3) stabilized occupancy after renovation is unclear as some businesses may not return, 4) construction will take 12-18 months due to labor limitations, and 5) owner has accident insurance for rebuild but did not have rental loss/business interruption insurance.

It is clear that the market value after the loss is less than the market value before the loss less construction costs. Other factors to consider are: loss of rent, market risk of not enough tenants available after construction is complete, cost of managing the construction, a illiquid market with few buyers right after the loss, construction risk , interest rate risk (rates could rise during the construction period negatively affecting the value), the risk that operating expenses could increase during the construction period (perhaps insurance), and compensation for the business effort to induce a buyer to coordinate working capital, management and bear the risks mentioned above.

A careful analysis by an appraiser may show that the improvements are worthless after the flood. In writer-performed appraisal assignments, a casualty loss of 10-30% of market value before the loss occurs (in a simple and defensible analysis) is typical. This can lead to a significant casualty loss tax deduction that results in tax reduction.

For example, a property with a market value of $5,000,000 suffers a casualty loss of 30%. While the loss is a serious hardship on homeowners, the $1,500,000 ($5,000,000 X 30%) tax deduction will mitigate the financial loss. Based on a 35% tax rate, the tax reduction is $525,000.

Congress provided a casualty loss tax deduction to encourage investment in real estate. If you are unfortunate enough to suffer a casualty loss, take the helping hand offered by Congress and take the tax deduction.

Cost segregation produces tax deductions and reduces federal income taxes across the country and in markets of all sizes. Here are some examples of cities where cost segregation leads to significant tax deductions.

City:

• Memphis, TN
• San Francisco, CA
• New Orleans, LA
• New York, NY
• Hartford, CT
• Las Vegas, NV
• Los Angeles California
• Atlanta Georgia
• Orlando, Florida
• Miami Florida
• Louisville, Kentucky
• Salt Lake City, UT
• Boise, ID.
• Lakeland, Fla.
• Wichita, Kansas
• McAllen, Texas
• Columbus, OH
• Lauderdale, Florida
• San Antonio, Texas
• Durham, North Carolina
• Allentown, Pennsylvania
• Youngstown, OH
• Little Rock, AR
• Greensboro, North Carolina
• Greenville, South Carolina
• Kansas City, MO
• Raleigh, North Carolina
• San Jose, California
• Palm Bay, Florida
• Honolulu, Hello

Cost segregation produces tax deductions for virtually all types of property, including the following:

Kind of property:

• regional mall
• service station
• Pharmacy
• nightclub
• Supermarket
• racket club
• car service garage
• aircraft hangar
• Nursing home
• subsidized housing

Almost all industries, including the following, can generate profitable tax deductions through cost segregation.

Industry:

• Non-durable goods wholesalers
• Good sustainable wholesalers
• nursery facilities
• Computer and electronics manufacturing
• Health centers
• chemical manufacturing
• printing activities
• storage and storage
• Electronics and appliance stores
• clothing manufacturing