Self Storage Review

Most commercial property owners, even those who use professional accountants, fail to take advantage of cost segregation, a tax mechanism that could generate substantial savings in federal income taxes.
While most accountants are familiar with the approach, some are hesitant to recommend it without a documented analysis of correct depreciation amounts. The numerous intricacies of IRS designated building components make it difficult for some accounting professionals to be cognizant of all applicable items on a specific property. CPAs recognize that in order for the client to fully benefit, it is usually necessary to seek a real estate specialist to provide an independent report supporting the owner’s depreciation schedule.
Although it is vastly under-utilized, cost segregation is no wildly speculative accounting tool. In fact, the American Institute of Certified Public Accountants’ National Journal of Accountancy has published numerous articles in support of cost segregation.
Cost segregation identifies applicable components and establishes the value and correct time line for depreciation. Under typical circumstances, depreciation is spread out over as long as 39 years. However, cost segregation applies depreciation to parts of the property in 5-,7- and 15-year increments. This acceleration in depreciation time reduces the income subject to federal taxes. This method does not dictate alternative minimum tax issues.
Professionals Prepare Detailed Reports
To perform a cost segregation analysis, initially the building’s cost basis for construction, renovation and repairs is reviewed. A technician goes on site to take detailed measurements and observe the quality and condition of the property. After the site visit, he or she calculates the value of the property using widely accepted pricing resources and local economic conditions.
A cost segregation study produces a professional document that is backed by careful research. The results are summarized in a detailed report, documenting the amount of 5-,7- and 15-year property that qualifies for short-life depreciation.
Real estate appraisers or engineering firms typically have the knowledge to perform the detailed cost segregation studies, frequently at the recommendation of the owner’s tax preparer. Preparing the study requires expertise in evaluating real estate and complete command of the regulations that detail these depreciation options. Internal Revenue Code regulations outline approximately 130 categories of property, which qualify for shorter lives.
Cost segregation regulations contain a lot of variables that are not necessarily intuitive. The 5-year property includes items such as carpet and vinyl flooring. Seven-year property may reflect signs and parking lot striping. Fifteen-year property encompasses paving and landscaping.
Many CPAs Recommend Cost Segregation
Most property owners instinctively believe their CPAs are performing cost segregation for them, but research has suggested that this tool is used only 5% - 10% of the time. CPAs and other tax preparers may not routinely perform the study because it involves real estate appraisal methodology and specialized knowledge outside the scope of a typical tax practice. Even though cost segregation may be unfamiliar territory to some accounting professionals, it is highly praised by many accountants.
“Cost segregation is a powerful and necessary part of accurately calculating depreciation for real property,” comments CPA Bill Bandy of Blakely and Bandy, a Houston-based accounting firm. “A properly prepared study is invaluable to me as a CPA because it provides reliable support for preparing the depreciation schedule and reducing my client’s taxes.” Recent changes in tax regulations make cost segregation more attractive and allow it to be implemented years after the completion of a real estate purchase.
How Does It Work?
Historically, most depreciation schedules are split between land and long-life property. Long-life property depreciates over 27.5 years for apartments and 39 years for most commercial properties. A cost segregation study can typically allocate 20% to 40% of the improvement basis to short-life categories, and sometimes more.
High-income owners typically pay a 35% federal tax rate on ordinary income and a 15% rate on capital gains. The mechanics of reporting the gain on a sale usually allocate most of the gain to capital gains, which is taxed at 15%.
A cost segregation study actually reduces the amount of long-life property, which is recaptured at 25% by allocating more of the basis to the 5-,7- and 15-year property. If cost segregation is utilized from inception until a gain on the property is recognized, it can reduce the federal tax rate from 35% to 15% for most investors. The exceptions are C corporations, which pay the same tax rate for either ordinary income or capital gains.
How Much Can It Save?
The annual tax savings through cost segregation can be significant. The following table summarizes actual first-year tax savings generated in cost segregation reports prepared by O’Connor & Associates, a national real estate consulting firm.
A recent client of the firm realized a payback ratio for the first year savings at 4:1 and the payback ratio for the first five years at 20:1.
Who Prepares Cost Segregation Studies Today?
Appraisal and engineering firms, Big Four firms and spin-offs of Big Four firms are the primary providers of cost segregation studies. Some accounting firms offer the service but frequently outsource the actual report preparation to an appraisal or engineering firm. With the introduction of new providers, the price gap has widened between very low cost analytical studies and much higher large firm rates.
Do All Properties Benefit From Cost Segregation?
Cost segregation is typically effective and financially feasible for properties that have an improvement basis of $500,000 or higher.
Cost segregation can be performed for properties anywhere in the United States. It is effective for apartments, office, retail, industrial, self-storage and many special use properties.
“Clients expect us to seek out and utilize tools which will minimize their federal taxes,” says CPA Sheldon J. Donner of Donner Weiser & Associates, P.C., an Atlanta-based CPA and consulting firm. “Cost segregation is an appropriate, conservative and cost effective tool to substantially reduce federal and state income taxes. Our clients have been extremely pleased with the results.”
When Should I Obtain A Cost Segregation Report?
“We routinely obtain a cost segregation study after purchasing an investment property,” said Jeff Harris, chief financial officer of Boxer Properties, a national property investment firm. It typically makes sense to obtain a cost segregation report the year a property is purchased or built. Property owners who purchased or constructed property after 1986,often can benefit substantially by recouping previously under-reported depreciation without filing amended tax returns.

What comes to your mind when you hear the term container sales? Probably you think of a shop stacked with all kinds of containers like pet bottles, paper cartons, tin cans, and all the other containers you store stuff in. In this article, however, we discuss another type of container, the shipping container carried by large trailers that you see on the road and at dockyards.

These containers come in numerous varieties. There are the plain 20′x8′x8.5′, 40′x8′x8.5′ and 45′x8′x9.5′ popular sizes, and half sizes and custom sizes. There are dry van containers used to pack cartons, sacks, bales, etc; reefer containers that have climate control facilities; bulktainers used to ship bulk materials or heavy machinery; tank containers used to pack liquids and dangerous stuff; roll-on containers into which difficult-to-handle cargo can be rolled in and out; and so on.

The abovementioned items are all shipping containers that require certification under the Convention for Safe Containers (CSC) as standardized by International Maritime Organization (IMO). This certification testifies to the suitability of the containers for “continued safe handling and transportability in the commercial intermodal transport environment”.

Container sellers can sell you new or used containers with CSC certification. But container sales are not restricted to shipping containers. We look at some of the offerings you will find at container sales yards.

Storage Containers

These are containers that might have been retired from shipping functions. They could also be from the large quantities of empty containers that tend to accumulate at places where inward flow of containers always exceed outward flow. This happens because there are more imports than exports, and it is uneconomic to ship empty containers back.

Such surplus containers are excellent for storage of household articles, boats, equipment, or anything else you want to store. Self-storage facilities use containers extensively as they offer closed spaces that can be under the lock and key of the hirer.

Container Houses, Offices and Shops

Container sales companies typically offer remodeled containers for various purposes. One major use is as temporary or longer-term living accommodation. The containers are fitted out inside to provide livable interiors with windows and doors, and living facilities like fold up beds and furniture, kitchen units, toilets and storage shelves. Power can be made available through solar panels and equipment.

Instead of fitting out for living accommodation, the containers can also be fitted out as offices, canteens, market stalls or for other similar functions. It is also possible to incorporate a multi-level structure, either by having smaller levels or by stacking containers over one another.

One major advantage of container houses, offices and shops is their mobility. They can be easily moved around using trucks with container handling equipment. You can thus move the living quarters to different worksites; your market stalls to different markets or entertainment venues, and so on.

We have seen only a sampling of how containers can be modified and converted for different kinds of uses. The possibilities are huge, and if you want any kind of structure that can be easily moved around, or accommodated in a compact space, container modification could be your answer.

Container sales thus involve much more than selling containers.

When it comes to storage of your goods or belongings, for whatever reason, you are presented with several options, the most popular of which are self-storage and public storage. This articles will be discussing the differences between these two options in hopes that, once you have read it, you will be able to make a good choice of storage facilities as required by your specific needs.

Public storage has lost a lot of ground to self storage over recent years. Public storage was a very common option in the past, probably because it was the only good option at the moment. Although times keep changing, some things will always stay the same to some extent, and the need to store goods in a place other than home or the office is one of those things. Therefore, in spite of the certain disadvantages, any alternative to storing goods inside the home or the office was welcomed. Public storage is still available today, but it has become a lot less popular with the advent of self storage.

Public storage, as the name suggests, refers to storage in a public facility, such as bus depots, train stations or airports. On the other hand, self storage refers to storing belongings and goods in special facilities that are self-controlled. As you can imagine, or probably already know, public storage is neither as private nor as secure as self storage. Furthermore, given the fact that goods are stored in public facilities, access is not allowed at will. What’s more, public storage comes with a fairly long list of restrictions as far as stored objects are concerned. All these disadvantages became all the more obvious with the advent of self storage facilities.

Self storage represents a very convenient alternative to storing goods for a number of reasons. First of all, it is cost-effective, with month-to-month rent agreements. Second of all, it is an excellent way to put your mind at rest as far as the safety and security of your stored items goes. Moreover, you have easy access to your stored goods seven days a week (including holidays), as well as the possibility to remove certain goods and replace them with other items at no cost. Furthermore, you have a lot of options when it comes to choosing the right self storage unit size, as required by your specific needs. Some self storage facilities are one-story buildings with easy roll-up doors and sloped roofs, and are available for rent in a variety of sizes, from twenty-five square feet to units as large as three hundred and sixty square feet. What’s more, if you have some particular needs, climate-controlled self-storage units are also available. In short, self storage represents a very flexible and convenient option. This is the kind of store-it-yourself option with advantages that no other method of storing can provide. You can store goods of virtually any size, from small items packed in storage boxes, all the way to large items, such as furniture, appliances, boats, etc. Whenever you need to take all or some your storage boxes out of the self storage unit, you can do so without requesting permission, waiting or paying an additional fee.