A couple of weeks ago, The New York Times published an article explaining the tax breaks that Donald Trump is able to enjoy that typical homeowners simply can not.
Please note: This article is not intended to be a political discussion. It is solely intended to bring awareness to the many tax incentives available for businesses and real estate investing.
What we can learn from this.
It's important to remember that real estate is the only investment in the United States that can be expensed. You can’t expense the purchase of stocks, bonds, or alternative investments. However, you can expense your investment in real estate and, through a cost segregation study, do most of that expensing upfront. Note in the article, how The New York Times mentions how Trump used cost segregation to generate non-cash Federal tax losses.
Real Estate is the only investment class where the government will give you part of the equity to buy it through historical tax credits, facade easements, air rights, TIFFS, energy tax credits, and affordable tax credits. The government gives the investor the equity free and the investor then gets to write off 100% of the building to minimize taxes and preserve wealth.
Lets look at an example of our typical client:
A real estate investor buys a $10,000,000 property. The investor receives $3,000,000 in federal tax credits that he uses as his equity. No money out of pocket. The investor secures 70% debt. The investor now does a cost segregation study; and through that study the investor is able to capture a $4,000,000 tax deduction in the first year alone. At a 50% tax rate, that is a $2,000,000 cash benefit. The investor also probably qualified for a much lower interest rate since the property was energy efficient which also qualified for another tax deduction of $500,000 which is a $250,000 cash benefit.
Furthermore, the above investor also took a conservation easement on the land, promising the federal government he would conserve some of the acreage for wildlife. This netted the investor another $600,000 in cash.
In summary, the investor has a $10,000,000 building. No equity needed, provided by the government. The same property allowed him to take $4,500,000 in tax deductions (tax loss) to preserve $2,250,000 in cash and offset other taxes. It is easy for anyone to do this. Many simply don’t have the awareness to do so otherwise they would. Who wouldn’t? How many real estate investors have tax advisors that would miss this? 90%? Maybe more? It comes down to a lack of awareness where these incentives are missed.
What we learned from the Presidential debate was that most people don’t understand these tax benefits. The IRS did not have a problem with the loss because they understand cost segregation and that our tax code is structured to help people and businesses reduce tax liability so that they retain funds for proper business operations, driving revenue into our markets through wages and purchases. Let us reiterate that our comments have nothing to do with either candidate or either party. We are certain that many Americans, both republicans and democrats, have almost no knowledge of these tax benefits. Cost Segregation is bipartisan. Thankfully, our clients understand and we will collectively continue to help educate the US.
Give us a call today, 800-236-6519, if you would like to learn more about how you or your clients can preserve cash, find tax deductions, and offset other taxes. Contact us here for a free pre-qualification review if you already have a project in mind!