Signing a Contract

Private Placement Pass Through Tax Benefits
Reducing taxable income through program expenses, depletion and depreciation

Private placement (or non-public offering) is a funding round of securities which are sold not through a public offering, but rather through a private offering, mostly to a small number of chosen investors.  Generally, these investors include friends and family, accredited investors, and institutional investors.

Investing in Private Offerings that involve direct ownership of real estate and/or equipment can provide tax benefits that include:

Depreciation

Depreciation is a method used to allocate the cost of tangible assets or fixed assets over the assets' useful life.  In other words, it allocates a portion of that cost to periods in which the tangible assets helped generate revenues or sales.  By charting the decrease in the value of an asset or assets, depreciation reduces the amount of taxes a company or business pays via tax deductions.

A company's depreciation expense reduces the amount of earnings on which taxes are based, thus reducing the amount of taxes owed. The larger the depreciation expense, the lower the taxable income and the lower a company's tax bill.  The smaller the depreciation expense, the higher the taxable income and the higher the tax payments owed.

Image by Teté Gallardo Batista

Accelerated Depreciation

A method whereby an asset loses book value at a faster rate than the straight-line method.  Generally, this method allows greater deductions in the earlier years of an asset and is used to minimize taxable income.

Beer Brewery Machine

Real Property

The general recovery period for nonresidential real property is 39 years and residential rental property is 27.5 years.

Cost Segregation

The process of identifying personal property assets that are grouped with real property assets, and separating out personal assets for tax reporting purposes.

This allows companies and individuals who have constructed, purchased, expanded or remodeled any kind of real estate to increase cash flow by accelerating depreciation deductions and deferring federal and state income taxes.  Real estate investors will receive immediate expensing of certain 5, 7 and 15 year property.

Harvest Work

Section 179 Expenses

A taxpayer may elect to expense the cost of any section 179 property and deduct it in the year the property is placed in service.  Section 179 covers almost all types of “business equipment” that a company buys or finances.  To qualify for the Section 179 Deduction, the equipment listed below must be purchased and put into use between January 1 and December 31 of the tax year being claimed.

  • Equipment (machines, etc.) purchased for business use

  • Tangible personal property used in business

  • Business Vehicles with a gross vehicle weight in excess of 6,000 lbs

  • Computers

  • Computer “Off-the-Shelf” Software

  • Office Furniture

  • Office Equipment

  • Property attached to a building that is not a structural component of the building (i.e.: a printing press, large manufacturing tools and equipment)

  • Partial Business Use (equipment that is purchased for business use and personal use: generally, the deduction will be based on the percentage of time the equipment is used for business purposes).

  • Certain improvements to existing non-residential buildings: fire suppression, alarms and security systems, HVAC, and roofing.

The above equipment qualifies whether new or used (but must be new to you), and also regardless of whether it was purchased outright, leased, or financed.

Image by Quino Al
Intangible Drilling Costs,
Tangilbe Drilling Costs and Depletion Allowance
Intangible Costs typically include: Expenses made by an operator that cannot be recovered and are necessary in the drilling and preparation of wells for the production of oil and gas, such as survey work, ground clearing, drainage, wages, fuel, repairs and supplies.
Tangible Costs typically include: Costs pertaining to the actual direct cost of the drilling equipment, such as well rigs and machinery.

Depletion is an accounting and tax concept used most often in the mining, timber, and petroleum industries. It is similar to depreciation in that it is a cost recovery system for accounting and tax reporting: "The depletion deduction" allows an owner or operator to account for the reduction of a product's reserves.