A Less-Taxing Way to Own Office Space

Lease vs. Buy

The traditional way for most small to mid-sized businesses to acquire needed office or industrial space is leasing. Larger companies have the buying power to purchase business property in order to better control their occupancy costs — but smaller companies have long been subject to rent increases caused by economic fluctuations over time.

In today’s California real estate market, including here in the Silicon Valley, a second option is emerging. A growing number of developers and building owners are offering business condominiums, with office or industrial space that can be purchased on a much smaller scale than acquiring a complete building. Still, for many small businesses with modest cash reserves, making a down payment on the purchase of business space may seem beyond their reach.

Thanks to a little-known accounting practice called cost segregation, which has been accepted in the past by the IRS — together with outstanding tax benefits offered by the 2003 Jobs and Growth Tax Relief Reconciliation Act — any business owner can now consider the possiblity of owning, rather than leasing, business space.

Tax Benefits

Cost segregation pays dividends It starts with real estate cost segregation, a smart way to accelerate the depreciation on business property. In simplest terms, cost segregation lets you recover certain building costs over fifteen, seven, or even five years, rather than depreciating the entire value of a building-minus the land cost-over the standard 39 years.

The cost segregation method has only been available for the past few years, with the sophisticated analyses primarily used by large corporations that understood the highly favorable tax implications. Today, even the smallest businesses can use the accelerated depreciation that cost segregation makes possible to save thousands of dollars in taxes. When combined with special tax incentives available only through 2004 (unless extended by Congress), these savings can sometimes be as large or larger than your down payment.*

In this case, there can be no reason not to buy!

Cost segregation accounting practices and special limited-time tax incentives have made it more affordable for businesses of all sizes to own their office or industrial space. Download our white paper to learn more.

Tax Incentives Expiring Soon           

Among the 2003 Tax Act incentives are:

  • Section 179 Deduction-Business owners can take a deduction of up to $100,000 in accelerated depreciation on business property in the first year in which a building is placed into service. This $100,000 deduction will be reduced to only $25,000 after 2005.

When combined with cost segregation, these special tax incentives can easily add up to tens of thousands of dollars for the typical buyer-which puts owning within the reach of virtually everyone. A close examination of our “Lease vs. Buy” analysis will show you exactly how these benefits can add up. Of course, you’ll want to consult your tax professional about your specific situation to learn how these benefits might apply to your purchase.

Long-term Appreciation

Real estate has always been a valuable asset for many successful corporations. The long-term appreciation potential can add substantially to the value of a business.

Today’s unique tax advantages and attractive financing options put ownership within the reach of more small businesses than ever before.

Please read our PDF document called “A Less-Taxing Way to Own Business Space” to find out more about cost segregation and how owning your own office or industrial space can be a smart financial move for you and your business.

* The above discussion does not take into account every tax situation for all businesses or individuals. Not all tax laws have been considered-for example, passive loss and at-risk rules or alternative minimum tax (AMT) requirements could alter the tax benefits. Business owners should contact a tax advisor before making buying decisions.