Cost Seg Building

A Blog About Tax Savings for Building Owners

Author: John Murphy (Page 2 of 15)

Husband of 34 years to my college sweetheart, Janet Murphy (@janetmurphydesign on Instagram). Together we have 6 wonderful children from ages 15-31 and 5 grandchildren. I've been a licensed REALTOR since 2003 and broker since 2007. I also am a cost segregation specialist helping building owners and real estate investors maximize their tax deductions, save thousands on their income taxes and increase their cash flow. If you're a building owner you probably haven't done a study...let's connect. There is no obligation. We can run an estimate for you and really every building should be evaluated if the basis is over $150,000. I can work all over the country and not just here in the Upstate. We relocated to Greenville, SC for the lifestyle, lower cost of living, amazing amenities in the area and the growth opportunity for business and real estate. We absolutely love it here!

All opinions are expressly my own and do not represent either eXp Realty LLC, Cost Segregation Services, Inc. or any other company, organization or group that I might be affiliated with.

The Hidden Tax Break for Self-Constructed Buildings: How Small Businesses Can Expense 10-30% of Costs Upfront

February 26, 2025 / / 0 Comments

Those who self-construct their own properties and qualify under the Small Business Rules for 263A might be able to EXPENSE much of their indirect / soft costs to develop, finance and construct the building. This can often be between 10-30% of the cost of the overall project. It’s a game changer. Everyone I know capitalizes these costs because that has been the norm, but it’s been available for expensing since 1/1/2018 due to the Tax Cuts and Jobs Act.

Let’s say you build a new $1,000,000 office warehouse. What if instead of capitalizing those indirect and soft costs across various class lives if you do cost segregation (5, 15, 39 year) you could just expense those and take the deduction right now. It’s has a dramatically different tax impact saving you tens of thousands in income taxes. It also is not subject to recapture tax.

If you meeting the qualifications as a Small Business owner and this is a self-constructed asset, it will be worth it for you to reach out and get an estimate of the costs for the study and the tax savings you’d be looking at if you apply this to your building.

What costs are eligible?

  • Construction interest
  • Engineering and achitectural fees
  • Portions of soft costs and permits
  • Portions of building permits
  • Other development costs

Might you qualify?

  • Property built since 2018
  • Self-constructed asset (owned during construction)
  • Small business taxpayer (gross receipts under $30MM/Year)
  • Not a syndicate (there may be exceptions – let’s discuss)

Most people are not aware of this because it was only instituted with the Tax Cuts and Jobs Act back during Trump’s first term. This applies to buildings constructed since 1-1-18.

BTW, we can do a look-back study on properties you have developed and still own going back to 1-1-18. Our team will take care of drafting the Change of Accounting Form 3115 and do the negative 481(a) calculation. Your tax advisor would then sign off.

For self-constructed assets, it might be that you are operating your business out of the property. It could be that you are an investor having a property built and you’re hanging on to it. The study works on tenant improvements and building expansions as well. If the construction costs are $250,000+, it’s likely the cost benefit will be in your favor. Take a look. Reach out. I’d be happy to talk with you and get you the information you need to talk with your tax advisors.

Constructing buildings is not cheap these days. I know many have a difficult time of making the numbers work. If you could expense 10-30% of the project right away in year 1, I would think your financials on the project would suddenly look a whole lot better.

Ceiling Height vs Ceiling Clearance

February 26, 2025 / / 0 Comments
Photo Credit: @ChadGriffiths on Twitter

We don’t get into ceiling height when it comes to cost segregation other than it likely affects the kinds of dock doors that are installed at the building. I’m posting this because I thought it was a fantastic explanation by @ChadGriffiths of the differences between ceiling height and ceiling clearance. No doubt this is a critical feature of industrial buildings.

The Secret to Making Office-to-Residential Conversions Financially Viable: How Green Zip Tape Can Unlock Massive Tax Savings

February 26, 2025 / / 0 Comments
Green Zip Tape

Office to residential conversions are continuing to happen but maybe not at the pace many of us expected as we started to come out of the morass of the Corona lockdowns. They are progressing but the costs to convert these buildings are enormous. We have a product that might make these projects a lot more doable.

We know there are many projects that are sitting on the shelf and are not moving forward because the proformas don’t work. But what if a most of that interior cost associated with the renovation could be reclassified as 5 year class life instead of 27.5 years? That would be a game changer for many of these projects.

Office to residential conversions do not qualify for QIP – Qualified Improvement Property. QIP gets 15 year class life and it’s what many are used to when they are doing interior renovations on commercial buildings. Those improvements, if not structural and aren’t part of an elevator or escalator, automatically get a 15 year class life. Now we study a lot of these projects because they want to properly identify everything, but let’s look at the buildout of an office conversion to apartments.

Depending on where these conversions are happening, those costs might be $300-$500/SF. Those costs generally will get depreciated over 27.5 years. Perhaps 15-20% of it can get reallocated to 5 year life with a cost segregation study. But what if 60-80% of those costs could get 5 year class life. That’s a game changer because it opens up a lot more of the building costs to be able to be taken as either bonus depreciation or accelerated depreciation. You can do this if you spec in and use our patent protected drywall tape called Green Zip Tape. It allows for more of the building to be accelerated. Everything that touches the Green Zip Tape gets a 5 year life – the sheet rock, the paint, the studs in the wall, the electrical, plumbing and cable in the walls. It’s a massive game changer.

The costs for the Green Zip Tape run $3/SF. We guarantee you’ll see a $30/SF tax benefit by using our tape. No other tape or product frankly can do this. If you are working on an adaptive reuse project with a significant sheet rock application, Green Zip Tape might be right for you. Want to learn more? Reach out and lets have a conversation about it.

John Murphy CSSI

Does Deferred Depreciation Qualify for Bonus Depreciation?

February 25, 2025 / / 0 Comments

No, deferred depreciation is not eligible for bonus depreciation. Bonus depreciation applies to qualified property that is newly placed in service during the tax year. Deferred depreciation typically refers to depreciation that was not claimed in prior years but is now being caught up, often through a Form 3115 (Change in Accounting Method) adjustment or a Section 481(a) adjustment.

Here’s why deferred depreciation does not qualify for bonus depreciation:

  1. Bonus Depreciation Requires New Property Placement
    • Bonus depreciation is available only for property placed in service during the current tax year. Deferred depreciation generally applies to assets that were placed in service in previous years.
  2. Catch-Up Depreciation is Taken Over Time or as a 481(a) Adjustment
    • If you are catching up on depreciation that should have been taken in prior years, you typically claim it as an adjustment. This catch-up amount is not considered a newly placed-in-service asset.
  3. Bonus Depreciation is a Forward-Looking Incentive
    • The purpose of bonus depreciation is to incentivize investment in new or newly acquired property, not to provide tax benefits on past missed depreciation.

Panera Bread Coming to Anderson – 1702 E. Greenville, Anderson, SC

February 25, 2025 / / 0 Comments
Panera Bread Anderson, SC – Photo Credit Garrison Smith and Zane Landwerlen, McCoy Wright

Panera Bread continues to expand in the Upstate of South Carolina and will soon be opening a new store later this year in Anderson, SC.

Garrison Smith and Zane Landwerlen of McCoy Wright announced on LinkedIn that the Freddys will be converted to a new Panera Bread. The address is 1702 E. Greenville St., Anderson, SC 29621.

Freddys building was about 2,700 SF and sits on an acre lot. This property just closed in January 2025 for $1,725,000.

I’m a Panera Sip Club member so it’s always nice to have more places where I can stop in and grab a coffee or lemonade as I’m out and about studying commercial property.

Greenville Leads the Way: A New Design Center for Transparency and Community Engagement

February 25, 2025 / / 0 Comments

The City of Greenville, SC has just signed a lease to open a Design Center right on main street so the public has easy access to planners and can see what is happening within the city. This is such a great idea and I love this concept as goverment moves toward greater transparancy.

The City of Greenville is one of the most remarkable small cities in the country and the leadership has been very deliberate regarding the growth and design you see in the city. They are to be commended for the work and planning that they have done.

I love the idea of street access to the City of Greenville Design Center. It looks like it will be beautiful space and I can’t wait to stop in to check it out and attend public meetings and presentations. The new space will open later this year and will be located at 15 S. Main St., Greenville, SC.

Well done City of Greenville, SC!

Cost Segregation for Industrial Outdoor Storage (IOS) Properties

February 24, 2025 / / 0 Comments
Antioch IOS – Piedmont, SC – Photo Credit: Lyons Industrial

Industrial Outdoor Storage has seen a sharp rise in demand over the past few years and people look for places to store their trucks and trailers. You might not think these are good properties for cost segregation, but you would be wrong. These are phenomenal asset classes when it comes to taking advantage of accelerated depreciation generated by cost segregation.

Most IOS sites are nearly 100% land improvements. There’s site work, gravel, maybe asphalt and concrete. They have fences, security gates, lighting and some have small out buildings as well as utilities. Sometimes we’ll see flex buildings or truck terminals that also have large storage areas for trucks and trailers.

If you’re building these from scratch with all the cost detail, your tax advisor might feel comfortable just allocating the various line items and components to their proper class lives so you can accelerated depreciation. But if they are not comfortable with that or it you might want a 3rd party expert like our firm to do the study for a nominal fee, you’ll not only likely rest easier having an engineering-based cost segregation study completed becuase of the size of the deduction you’ll get, but you’ll then maximize your deduction and be assured everything is classified properly.

Let’s say you spent $1,000,000 on building your IOS – not including the land acquisition. Let’s say $950,000 ends up being reclassified. If you built this and put it into service in 2024, you can take 60% bonus depreciation. That would be an increased accumulated depreciation deduction of $570,000. That’s a a MASSIVE deduction. If you would sleep better at night knowing a firm like ours did the study, then just pay the small fee to get it done.

If you have purchased an existing IOS – i.e. you did not build it from scratch but rather have bought it after the fact – then you should look at getting a cost segregation study done. You will get a lot of benefit by doing that. We study them often and the results are extraordinary. Reach out to me if you’d like a quote. I work all over the U.S. in all 50 states.

John Murphy CSSI

Webinar: Cost Segregation Look-back Studies and Applying 3115 Form for Bonus Depreciation

February 19, 2025 / / 0 Comments

CSSI will be hosting these webinars once per month in 2025 so if you can’t make this, there will be others. Just let me know if you’d like to be on my mailing list. Also, let me know if you’d like a copy of the presentation slides and video recording. While these tend to be geared toward CPAs as this one will be a continuing education course for CPAs, CRE brokers and commercial property investors are welcome to attend if you’d like to learn more. There is now cost.

CSSI Webinar: Applying 100% Bonus Depreciation Retroactively for Commercial Property and Short-term Rentals (Airbnbs, VRBOs).

John Murphy CSSI

Mobile Home Parks, RV Parks and Campgrounds – Outdoor Hospitality as an Asset Class

February 19, 2025 / / 0 Comments

I study a lot of mobile home and RV parks across the country as they produce phenomenal results when it comes to cost segregation. There are few asset classes that perform better. But these things are also massive cash generators and while there are some people starting to accumulated them, it’s a disjointed, fragmented and undercapitalized asset class that is ripe for disruption, consolidation and massive improvements. Many parks that I have seen have been operated by the same guy for the past 20-30 years and usually see rents substantially under market. New owners are coming in are often making improvements and boosting cash flow – i.e. better returns.

I’d like to share a LinkedIn post from Dylan Kidd whom I’ve worked with before on a number of studies. He is a specialist in RV Parks and Campgrounds and believes in it so much that he left a well estiblished and well regarded firm here in Greenville, SC to launch his own brokerage called Campfire Capital Group that will focus on Outdoor Hospitality in the southeast U.S. I thought his post on LinkedIn nailed so many great points about outdoor hospitality, RV parks and campgrounds.

Craig Gaulden Davis Architecture Merges with PBK

February 18, 2025 / / 0 Comments
Renfrow Industrial, Spartanburg, SC – Craig Gaulden Davis Architecture

Consolidation continues in the world of architecture as South Carolina-based Craig Gaulden Davis Architecture merges with Maryland-based PBK. The new firm is called Craig Gaulden Davis | PBK.

I’m not familiar with PBK, but Craig Gaulden Davis Architects play a prominent role in design and architecture on big projects in South Carolina. Here’s some of their portfolio.

PBK has this story posted on their site about the partnership or merger.

No doubt this newly merged firm is only going to have a bigger impact on large projects across the states they serve.

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