Almost any taxpayer who owns commercial real estate can reduce his or her current income tax bill by using cost segregation. Just how much you save in taxes will depend on several variables. The greater the cost of your property, the greater the potential for current tax savings.
Any building that was constructed, purchased, or remodeled since 1987 may be eligible for cost segregation. Retroactive tax deductions are available on older buildings without the need to file amended tax returns.
To pass an IRS audit for these deductions, you will want to use a cost-segregation specialist. This will usually be a construction engineer who can perform a detailed engineering study of all the building components (walls, ceilings, floors, plumbing, electric, telecommunications, heating and cooling systems, etc.) and assign the appropriate value to each. Those elements that qualify for five, seven, or fifteen year write off will provide the property owner with greater depreciation deductions and hence lower taxes in the early years.
The downside may be the cost to do the study versus the accelerated cash flow and possible penalties from the IRS for those who use cost segregation too aggressively.
The main elements of a proper cost segregation study are:
- Conducted by someone with valid credentials as to experience and expertise.
- A detailed description of the proper methodology.
- Complete and proper documentation.
- A full listing of all property that qualifies for shorter write off periods.
A properly conducted cost segregation study can provide a property owner with cash today that he or she would not otherwise get for several years.
An initial consultation with a cost segregation specialist can help you determine if your property is a candidate for a full blown study.
Your retirement funds are protected from creditors even if you file for bankruptcy, with only a few limitations. This protection extends to funds in all government-qualified pension plans, including IRAs (traditional and Roth), 401(k)s, 403(b)s, Keoghs, profit sharing, money purchase, and defined benefit plans. A recent U.S. Supreme Court decision has held, however, that an inherited IRA is not a “retirement fund” and therefore doesn’t qualify for bankruptcy protection.
An inherited IRA is a traditional or Roth IRA that a deceased owner has bequeathed to a beneficiary. It differs from a “true” retirement account in three ways:
- The beneficiary is not allowed to contribute additional retirement funds to the inherited IRA.
- The beneficiary, regardless of age, may withdraw funds from an inherited IRA in any amount and at any time without penalty.
- The beneficiary, regardless of age, is required to take annual minimum distributions from any inherited IRA.
Based on the above characteristics, the Court unanimously concluded that with respect to beneficiaries, inherited IRAs are “not funds objectively set aside for one’s retirement” and instead constitute a “pot of money that can be used freely for current consumption.”
Although the Court didn’t specifically address it, there is a possible option available if (and only if) the beneficiary is the spouse of the decedent. Spouses are permitted to roll over funds from inherited IRAs into their own IRAs, which would presumably bring those funds back under bankruptcy protection. The funds would, however, become subject to the rules that apply to non-inherited IRAs, such as penalties for withdrawals before age 59½.
Certain other strategies may be available if you have inherited or are likely to inherit an IRA and you are interested in possible bankruptcy protection. Call us for an appointment to discuss your options.