RENTAL HOUSE

TAX SAVINGS: $18,180

Engagement Overview:

We were engaged by the owner of rental property to conduct an accelerated depreciation study for a rental home that he owned. The objective of the engagement was to correct the property’s fixed asset schedule, thereby increasing cash flow. This was accomplished by identifying depreciable assets that could be moved to shorter recovery periods in order to accelerate the depreciation and eliminate short term income and state tax payments.

Property Overview:

This $315,000 rental home ($270,000 depreciable cost basis) was placed into service in October, 2005 and has a living area of 1,780 sf, containing 5 total rooms with 2 bedrooms. The house is located on a 4,100 sf lot.

Engineering Process:

Our engineers examined all design and construction documents, contractor payment applications and other related data to determine the quantities and cost basis for every component in the home. Next, our personnel prepared an IRS accepted depreciation study to reallocate all assets eligible for accelerated depreciation. Our team (engineer, senior engineer, and tax specialist) reviewed and certified the study’s completeness and accuracy.

Estimate of Benefits:

The pre-engagement estimate we provided to our client showed a potential reallocation of 25% of the $270,000 or $67,500 to shorter asset recovery periods. The projected tax benefit was $10,654 in current year tax payment savings, increasing to a total of $14,504 in tax payment savings over the next 5 years. Actual Results: Our study resulted in a total of 27.6% or $74,520 being rescheduled to 5 and 15- year asset recovery periods. The actual tax benefit was $12,955 in current year tax payment savings, increasing to a total of $18,180 in tax payment savings over the next 5 years.

Project Cost: The client paid $1,375.