Optimal Best Practices™
national real estate valuation enhancement serviceForCostSegregation.Com™
ForCostSegregation™ FixMyDepreciation™FixMyLeases™ FixMyValue™LiabilityCheckUp™
Created by real estate business and tax lawyer, Richard Ivar Rydstrom, J.D., LL.M., out of the necessity to offer his client owners (of commercial buildings) a “valuation enhancement service” based on Optimal Best Practices. Richard is a nationally published author on the I.R.S. compliant depreciation procedure known as “Cost Segregation”. Richard is published by the premiere national commercial owners association, “AIR Commercial Real Estate Association” which noted the urgency that brokers learn and inform their owner clients of the use or disclosure of cost segregation to enhance “valuations” by stating: “Your AIR management feels the piece is highly relevant at this time.” This national real estate valuation enhancement service is a marriage with Richard’s consultory firm and the very top hand-picked CPA/engineer experts in the specialty profession of “cost segregation” studies with hundred’s of successful projects. Mr. Rydstrom is the founder of TaxFavored Construction™ and the creator of Optimal Best Practices Certification™ used by architects, owners, developers, contractors and construction managers (“CMs”) to make or save owners’ potentially millions. In association with the AGC (Association of General Contractors of America), Richard is currently offering Free TaxSmart™ and GreenSmart™ Certificates on www.taxsmartconstruction.com. Contact us for a free ID and password.
The distinction with our service is we employ “Optimal Best Practices”, not the minimum “Best Practices” standards. We use a comprehensive approach starting with Design, Installation, Methods, Materials and Systems (DIMMS™). It’s not only about price. It’s not only about taxes. It’s not just about Valuation or Cash Flow. Tax savings, higher valuation and enhanced cash flow are usually a bi-product of a predominant plan of achieving efficiency in GreenSmart Design™ and GreenSmart Construction™!
For a Free Estimate of the Cost Segregation Benefits and Costs email:
Ross Cumberland, Executive in Charge at ross@fixmydepreciation.com
2007 Depreciation Tax Update
25C CREDIT | IRS NOTICE 2006-53: On February 22, 2006, the Service issued Notice 2006-26. This Notice clarifies that section 4.04 of Notice 2006-26 should read as follows:.04 Specifically and Primarily Designed. A component is not specifically and primarily designed to reduce heat loss or gain of a dwelling unit if it provides structural support or a finished surface, as in the case of drywall or siding. In addition, a component is not specifically and primarily designed to reduce heat loss or gain of a dwelling unit if its principal purpose is to serve any function unrelated to the reduction of heat loss or gain. For purposes of the preceding sentence, the principal purpose of a component serves functions unrelated to the reduction of heat loss or gain if-(1) Production costs attributable to features other than those that reduce heat loss or gain exceed production costs attributable to features that reduce heat loss or gain; or(2) The facts and circumstances otherwise establish that the component’s principal purpose is to serve a function other than heat loss or gain.
IRS NOTICE 2006-53
Summary Conference Agreement Energy Tax Incentive Act 2005 (H.R. 6)The Energy Policy Act of 2005 What the Energy Bill Means to You The Energy Policy Act of 2005 (EPACT), signed by President Bush on August 8, 2005, offers consumers and businesses federal tax credits beginning in January 2006 for purchasing fuel-efficient hybrid-electric vehicles and energy-efficient appliances and products. Most of these tax credits remain in effect through 2007. U.S. Department of Energy SummaryIRS Highlights of the Energy Policy Act of 2005 for IndividualsTax Incentives Assistance Project
December Extenders: On December 8, 2006, Congress approved the ‘EXTENDERS’ – “extending” the 15-year straight line Tenant Improvement (TI) depreciation tax break (for qualified leasehold improvements and restaurant improvements), the current expensing of brownfields remediation cleanup costs, and the Energy Policy Act of 2005 deduction for energy efficient buildings.
Cost Segregation: Continuing down the road of tax relief for commercial property owners is the depreciation method known as “cost segregation”. Cost segregation is a method of increasing depreciation tax deductions by the reclassification of the components that make-up your clients’ buildings, especially “personal property”. In 2006 the IRS has affirmed the efficacy of “engineer-based cost segregation studies”
ForCostSegregation™Cost Segregation DefinedCost Segregation is simply a reclassification of some of a building’s components and materials into a shorter depreciation schedule. It is an IRS approved method which allows real estate investors to reclassify some portion of their real property into tangible personal property which can dramatically accelerate the overall depreciation of their real estate investment. Commercial property and tenant improvements are depreciated over a 39 year schedule. Residential property is depreciated over a 27.5 year schedule. By reallocating certain amounts out of the 39 or 27.5 year schedule, into a 5, 7, or 15 year schedule, the amount of the depreciation write-off is greatly increased.
Click for IRS GUIDELINES
CLICK FOR IRS DESIGN GUIDELINES REV RULE 75-178 WHITECO FACTORS
New I.R.S. approved “Cost Segregation” can save and make owners and developers millions. Tax studies and construction design, materials and installation are now inherently inter linked. The consequence of this marriage is the realization or loss of ‘quantifiable’ and ‘substantial’ tax, cash flow and insurance benefits. Reportedly, a reclassification of $1,000,000 from 39 year to 5 year property can result in almost $600,000 in first year deductions. Present value cash flow benefits may be up to 10% of the cost of the building. Cost segregation tax studies of construction design, materials, and methods of installation are now inherently inter linked. The consequence of this marriage is the realization or loss of material economic benefits to the owner. What if a cost-segregation study could properly reclassify $1,000,000 from 39 year to 5 year property and $1,500,000 to 15 year property to result in approximately a $550,000 first year tax benefit deduction? Add a zero and that’s $5,500,000 increase in cash flow. What if for every $100,000 increase in cash flow the building value goes up some $1,000,000 (10% Cap Rate) or $2,000,000 (5% Cap Rate). Is that something the owner would want to know? What if the owner could reclassify 10-40% (or more) of the depreciation base of that building? What if the HVAC units, plumbing and electrical systems, wall coverings, lighting or removable partitions could save the owner millions? Contractors need to embrace this betterment and inform the owners of the new opportunities in Tax-Favored Construction. Cost segregation can be applied to new or existing construction, tenant improvements, build-outs, renovation, remodeling, restoration, expansion, fit-outs, and demolition. That’s right, even demolition can now be structured to save taxes. Maybe it’s time to consider requiring your architects, brokers, CM and contractors to propose to you a Cost Segregation option - prior to final plans and design. Although you can implement a cost segregation study to realize great savings during or after construction, new construction integrated with tax-favored construction™ techniques can yield maximum cash flow savings and valuation enhancements. Maybe it’s time to have a third party consultant prepare you a free cost segregation study based on your proposed blue prints. You can find cost segregation consultants (engineer based CPAs and tax attorneys) at www.taxfavoredconstruction.com. For more information on cost segregation depreciation services click on: www.4CostSegregation.com .
GreenSmartConstructionDisclosures™ are legal disclosure forms to be used by construction companies in the contracting or bidding process. The owner (and owner reps) should sign-off on the contractor’s Tax-Favored & Green-Build Construction Disclosure Forms whether or not the contractor is retained concerning such services. Although arguably not a legal duty of the contractor, disclosure of such risks and options by the Contractor to the Owner (and owner reps) will mitigate risk exposure to the Contractor, and enhance the Contractor’s competitive advantage (and client loyalty). Trends in the law will ultimately make all those in a position of control or supervision responsible for disclosure. Failure to disclose important building choices or alternatives, which may result in the loss or gain of millions of dollars, should be an area of key concern for any risk management policy. Be ahead of the curve and implement optimal best practices with the official disclosure of GBO and Tax-Favored Construction alternatives to owners. Compliance with these “Optimal Best Practices” will substantially reduce risk and exposure, but build leadership and client loyalty as well.
Contact Richard Ivar Rydstrom, Esq.
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Richard Ivar Rydstrom, Esq. Attorney, Professor, J.D. Law, LL.M. Taxation / Litigation949-798-6206 Published or quoted collectively hundreds of times (in Commercial owners/brokers associations including AIRE and Constructor Magazine (AGC), Forbes, Los Angeles Times, Chicago Tribune, Dallas Morning News, Apartment Associations and CPA journals, etc., and in the 110th Congress of the United States of America.LEGAL NOTICE: This article is not legal, tax or financial advice, and you may not rely on it for same. This is a brief non exhaustive newsworthy article and may be deemed an advertisement from the State Bar. All Rights Reserved ©2007 Richard I. Rydstrom IRS CIRCULAR 230 DISCLOSURE NOTICE: To ensure compliance with IRS requirements, we inform you that any U.S. federal tax advice contained in this communication is not intended or written to be used, and cannot be used by any taxpayer, for the purposes of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein. R.Rydstrom owns or has interest in related topical websites including: www.TaxFavoredConstruction.com ™©2006-7www.TaxSmartConstruction.com ™©2006-7www.GreenBuildOptions.Com ™©2006-7www.ConstructionTaxCredits.Com ™©2006-7www.contractorsclub.com ™©2006-7www.developersclub.com ™©2006-7All Rights Reserved, Copyright, Trademark, Competition, etc. R.I.Rydstrom 2006-07
