1031 Exchanges for Developers and Contractors

1031 Exchanges Go Hand-In-Hand with Cost Segregation

Cost segregation studies, as well as 1031 exchanges, are a useful tax tool available to commercial real estate owners. Through proper tax planning, both techniques can be used simultaneously to maximum the tax benefits.

Both tools are used to defer taxes and therefore improve cash flow. Cost segregation and 1031 exchanges are useful on every type of commercial property. Both techniques also encompass complex areas of tax law and necessitate the use of specialists, such as those employed by CSC.

1031 exchanges require a “Qualified Intermediary” to perform the transaction and ensure proper execution. This will also help in case there is an audit. Cost segregation studies require a knowledgeable engineering consulting firm, such as CSC, to perform and validate them. It is also required that those specialists work closely with the property owner’s accountant or another tax advisor.

These two methods should be used effectively and provide a great opportunity for the taxpayer to defer income taxes into future periods. This, in turn, maximizes cash flow in the present. In order to use cost segregation and 1031 exchanges together successfully, the property owner’s CPA must fully understand the tax laws of both tools and how they apply to the client’s individual investment strategy.

1031 Exchanges for Property Owners

1031 Exchanges Go Hand-in-Hand with a Cost Segregation Study

Cost segregation studies, as well as 1031 exchanges, are a useful tax tool available to commercial real estate owners. Through proper tax planning, both techniques can be used simultaneously to maximum the tax benefits.

Both tools are used to defer taxes and therefore improve cash flow. Cost segregation and 1031 exchanges are useful on every type of commercial property. Both techniques also encompass complex areas of tax law and necessitate the use of specialists, such as those employed by CSC.

1031 exchanges require a “Qualified Intermediary” to perform the transaction and ensure proper execution. This will also help in case there is an audit. Cost segregation studies require a knowledgeable engineering consulting firm, such as CSC, to perform and validate them. It is also required that those specialists work closely with the property owner’s accountant or another tax advisor.

These two methods should be used effectively and provide a great opportunity for the taxpayer to defer income taxes into future periods. This, in turn, maximizes cash flow in the present. In order to use cost segregation and 1031 exchanges together successfully, the property owner’s CPA must fully understand the tax laws of both tools and how they apply to the client’s individual investment strategy.

1031 Exchanges Tax Planning with Cost Segregation Studies

1031 Exchanges With a Cost Segregation Study

Cost segregation and 1031 exchanges are two of the most valuable tax planning strategies available to commercial real estate owners today. Through proper tax planning, both of these tax-deferral techniques can be used on the same property resulting in maximum tax benefits.

Similarities Between Cost Segregation & 1031 Exchanges

  • Both are used to defer taxes and therefore improve cash flow
  • Both can be performed on every type of commercial property
  • Both strategies can be used on the same property
  • Both encompass complex areas of tax law and require the help of specialists*

*1031 exchanges require a “Qualified Intermediary” to perform the transaction and ensure proper execution.

*Cost segregation studies require an engineering-based consulting firm to perform and validate the study.

Tax Planning and Exit Strategies

1.Cost Segregation Consultants cost segregation estimate helps determine if a study will be beneficial for the replacement property, given the carryover tax basis. Generally, cost segregation studies are most advantageous when the building owner is exchanging up in value, or exchanging from land to a building. Our team is a 1031 exchange specialist.

2. Consider depreciation recapture resulting from the cost segregation study if the property is to be later disposed of in a Section 1031 exchange. Building owners should plan for the possibility of future depreciation recapture, which requires paying some tax in the later exchange. However, recapture can be avoided altogether by acquiring replacement property with sufficient amounts of Section 1245 property.

Where To Learn More About The Interaction Of Cost Segregation and 1031 Eexchanges:

“The Best of Both Worlds”
Journal of Accountancy, August 2005
By William Allen III and Mary Foster

“An Update of the Interaction of Code SEC. 1031 Exchanges and Cost Segregation, Including Bonus Depreciation, and Other Basis Adjustments Giving Rise to Depreciation Recapture”
Journal of Pass-through Entities, July-August 2013 By Mary Foster

1031 Exchanges Tax Planning with Cost Segregation Studies

1031 Exchanges with a Cost Segregation Study

Tax Planning With 1031 Exchanges

Cost segregation and 1031 exchanges are two of the most valuable tax planning strategies available to commercial real estate owners today. Through proper tax planning, both of these tax-deferral techniques can be used on the same property resulting in maximum tax benefits.

Similarities Between Cost Segregation & 1031 Exchanges

  • Both are used to defer taxes and therefore improve cash flow
  • Both can be performed on every type of commercial property
  • Both strategies can be used on the same property
  • Both encompass complex areas of tax law and require the help of specialists*

*1031 exchanges require a “Qualified Intermediary” to perform the transaction and ensure proper execution.

*Cost segregation studies require an engineering-based consulting firm to perform and validate the study.

Tax Planning and Exit Strategies

1.Cost Segregation Consultants cost segregation estimate helps determine if a study will be beneficial for the replacement property, given the carryover tax basis. Generally, cost segregation studies are most advantageous when the building owner is exchanging up in value, or exchanging from land to a building. Our team is a 1031 exchange specialist.

2. Consider depreciation recapture resulting from the cost segregation study if the property is to be later disposed of in a Section 1031 exchange. Building owners should plan for the possibility of future depreciation recapture, which requires paying some tax in the later exchange. However, recapture can be avoided altogether by acquiring replacement property with sufficient amounts of Section 1245 property.

Where To Learn More About The Interaction Of Cost Segregation and 1031 Eexchanges:

“The Best of Both Worlds”
Journal of Accountancy, August 2005
By William Allen III and Mary Foster

“An Update of the Interaction of Code SEC. 1031 Exchanges and Cost Segregation, Including Bonus Depreciation, and Other Basis Adjustments Giving Rise to Depreciation Recapture”
Journal of Pass-through Entities, July-August 2013 By Mary Foster

Recent Projects

Recent News

Login

Free Benefit Analysis

Please answer the following questions to receive a free benefit analysis. One of our representatives will reach out within two business days.

learn more from a free cpe presentation

Please answer the following questions to find out more information about our free CPE certified presentation.

Free Cost Segregation Seminar

Please answer the following questions to receive information on a free 1 hour Cost Segregation Seminar. One of our representatives will reach out within two business days.