A Blog About Tax Savings for Building Owners

Author: John Murphy (Page 2 of 12)

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.

Unlock Hidden Value: Why Every Commercial Real Estate Broker Should Offer Cost Segregation to Their Clients

Introduction

In the competitive world of commercial real estate (CRE), every advantage counts. As a broker or agent, your goal is not just to help your clients close deals, but to add value that sets you apart from the rest. One underutilized strategy that can enhance client relationships, generate referral fees, and potentially lead to future transactions is cost segregation. This tax-saving tool can transform how your clients view property investments and open the door to significant financial benefits for both of you.

What Is Cost Segregation?

Cost segregation is a tax strategy that allows property owners to accelerate depreciation on specific building components, such as lighting, flooring, or specialized wiring, rather than depreciating the entire property over 39 years. By reclassifying certain assets into shorter depreciation schedules (5, 7, or 15 years), property owners can dramatically increase their tax deductions, often realizing significant tax savings in the first few years of ownership.

These upfront savings enhance cash flow and enable property owners to reinvest in their business or even expand their property portfolio. Given these benefits, cost segregation should be a standard part of your conversation with clients, particularly for those who own or are considering purchasing commercial real estate.

Why CRE Brokers Should Offer Cost Segregation

1. Value-Added Service for Your Clients

Offering cost segregation positions you as more than just a broker; it positions you as a strategic partner invested in your clients’ long-term success. The tax savings that clients can achieve through this strategy are substantial—sometimes as much as 20% to 40% of a property’s purchase price can be reclassified for accelerated depreciation. This kind of savings can lead to increased cash flow, allowing your clients to reinvest in their business, upgrade facilities, or even acquire additional properties.

2. Strengthen Client Relationships

Cost segregation creates an opportunity for brokers to strengthen client relationships by providing a service that has tangible financial benefits. When clients see that you’re proactively looking for ways to save them money, they’re more likely to return to you for future transactions. More importantly, when the savings from cost segregation enable a client to purchase another building, who are they likely to call? The same broker who introduced them to the strategy in the first place.

3. Earn Referral Fees

Not only can offering cost segregation be a value-added service for your clients, but it can also be a direct revenue generator for you. Many brokers are unaware that they can earn a referral fee for recommending a cost segregation study. This additional stream of income can be a nice bonus, especially when paired with the potential for repeat business as clients reinvest their savings into new properties. Also think about this…why leave an opening for your competition to eventually reach out to your customer / client and talk with them about cost segregation. They might wonder why you didn’t say anything about it.

4. Make Clients’ Properties More Attractive to Buyers

For brokers involved in sales transactions, presenting cost segregation as part of the package can make a property more attractive to potential buyers. When buyers understand that they can benefit from accelerated depreciation after purchasing a property, it can make the financial proposition of the deal much more enticing. In essence, you’re not just selling a building; you’re selling a future tax strategy that can significantly boost the buyer’s return on investment. My experience is that about 6 out of 10 building owners have never heard of this before. Many of their CPAs won’t make mention of it either. You should make sure all your clients and prospects know about it.

5. Staying Ahead of the Competition

The commercial real estate market is becoming more competitive, with brokers and agents vying for the attention of property owners and investors. Offering services like cost segregation distinguishes you from the competition by positioning you as a full-service consultant who can bring more to the table than just listings and negotiation skills. This depth of service helps to solidify your expertise in the eyes of clients, giving you an edge in a crowded marketplace. Consider marketing cost segregation as a service you offer – because you do! You just have to offer it!

Cost Segregation and the 2017 Tax Cuts and Jobs Act

The benefits of cost segregation certainly accelerated and became even more attractive since the 2017 Tax Cuts and Jobs Act (TCJA). One of the key provisions is bonus depreciation, which allows property owners to deduct 100% of qualified improvement costs in the year the property is placed in service. The TCJA has a stair step downward each year or bonus deprecation. For properties placed into service after Sept. 27, 2017 and by Dec. 31, 2022, they could take 100% bonus depreciation. (They still can with a lookback study…so if they haven’t done cost segregation, they can still do so). In 2023, bonus went to 80%. In 2024 it’s 60% and it lowers 20% each year until it is zero again in 2027. Congress may vote to extend bonus depreciation but given the way things are in Washington, DC, no one really knows if this is going to happen. Brokers should highlight the current bonus depreciation ability window to clients, stressing that now is the time to act to maximize tax savings.

Practical Steps for Brokers

If you’re a commercial real estate broker interested in offering cost segregation, here are a few steps to get started:

  • Partner with a Reputable Cost Segregation Firm: Not all cost segregation studies are created equal. Partnering with a firm that employs engineers and tax professionals ensures that your clients will receive a comprehensive and accurate study. Find a great rep who will be professional and responsive to you and your clients.
  • Educate Your Clients: Many property owners may not be familiar with cost segregation or may not realize it applies to their properties. Take the time to explain the potential benefits and how it could impact their bottom line. This is where your cost segregation partner can come in handy to help with the education. You don’t need to be the expert.
  • Highlight Potential Savings Early: When discussing potential purchases with clients, make it a habit to mention cost segregation. Highlighting the tax advantages upfront can make the financials of a deal more appealing to buyers. Some brokers also use cost segregation estimates to help them with their listing marketing.
  • Leverage Success Stories: Share testimonials or case studies from other clients who have benefited from cost segregation. This provides real-world examples of how the strategy can boost cash flow and open doors for further investments. Once you have an owner or two who saves $50, $100, $200k on their income taxes, you’ll become a true believer yourself.

Don’t Forget About Your Own Investments

Remember if you own commercial property or residential investment property, cost segregation can be a huge help to commercial real estate brokers. Discuss this with your own tax advisor, but normally you qualify for as a Real Estate Professional or REP, in the tax code. This means that all of your income is active so if you have real estate and can generate say a $200,000 depreciation expense, that very well might lower your income that year by $200,000 saving you probably $60,000 – $70,000 in income taxes. Might it be worth it for you to spent $4-$7k or so on a cost segregation study? I think so.

Conclusion

In today’s fast-paced commercial real estate environment, brokers need every tool in their arsenal to add value, build strong relationships, and stay ahead of the competition. Cost segregation is one such tool—a tax-saving strategy that not only benefits your clients but can also enhance your business by generating referral fees and encouraging repeat transactions. By offering this service, you position yourself as a forward-thinking, value-driven broker who is committed to maximizing your clients’ financial success.

Now is the time to unlock the hidden value in your clients’ properties and take your real estate practice to the next level. As I like to say, we help squeeze everything out of that property. There’s often money still remaining in many buildings and owners and brokers just are not aware. Let us take a look and see if we can help. There’s never a cost or obiligation to have us run the numbers.

I work all over the U.S. and would be happy to have a conversation with you. I partner with CRE brokers around the country to help them offer this service. I’m backed by a phenomenal company in CSSI. It still blows my mind how few commercial real estate brokers utilize cost segregation as part of their core services offered.

Multi-family Distress Reaches 9 Year High

Sources: Roddy’s Foreclosure Listing Service and The Real Deal

We’ve been hearing a lot about the financial stress and loan failures in the commercial real estate world for the past couple of years. It does seem to be accelerating and spreading. Now there are signs that the much vaunted multi-family asset class is showing signs of increasing distress.

Multi-family distress reached 5.71% reaching a nearly 9 year high according to GlobeSt. This is still better than the 11.91% distress in Office according to CRE Daily on multi-family distress.

We’re likely at the start of a three-year cycle of increasing multifamily distress,” Silverman told GlobeSt.com, explaining that many property owners who took advantage of favorable lending conditions between 2013 and 2017 are now struggling.

Mark Silverman, partner at Locke Lord, CRE Daily Article

Photo was taken from Shashankh Aryal’s LinkedIn post about multi-family distress in Dallas, TX. 3930 Accent Drive in Far North Dallas, TX. Follow him for lots of information about distressed commercial assets.

New Buc-ee’s Locations Fuel Real Estate Investment Opportunities

If you have not been to a Buc-ee’s, they are quite the American experience. I remember the first time walking into the actual store itself, I thought I had walked into a major sporting event. It was loud and energic! I loved it and my sons did too!

Here’s an excellent post from Chris Koerner with the locations of future Buc-ee’s. no doubt his assumptions are right about those who invest in and around these giant C-stores. These impact both residential investment properties as well as commercial properties.

Piedmont QuikTrip C-Store Sells to Arizona Buyer

Photo: Marcus & Millichap Listing Brokerage

If you’ve been to South Carolina, you know how much the people LOVE QuikTrip! They are awesome gas stations and convenience stores and they are all over the place here in the Upstate.

This QuikTrip in Piedmont just sold according to the GSA Report. It’s located at 2085 Highway 86, Piedmont. Terms of the deal were not disclosed. The property sits on 3.19 acres and was built in 2019. If I see the sale hit the tax record, I’ll update this post with the sale information, but for now, nothing is showing up. It must be a very recent sale.

According to the article in GSA Report, “Timothy Nichols, Sean Sharko and Austin Weisenbeck, investment specialists in Marcus & Millichap’s Chicago Oak Brook office, had the exclusive listing to market the property on behalf of the seller, a South Carolina limited liability company, and procured the buyer, a Phoenix, Ariz.-based limited liability company, the release stated. Ben Yelm, broker of record in South Carolina, assisted in closing the transaction.”

Cost Segregation and Tunnel Car Washes Purchased in 2024

Tunnel Car Washes and Cost Segregation – What you need to know about 60% bonus depreciation.

If you purchased a tunnel car wash in 2024, you’re going to want to cost segregate it. Back in 2022 when bonus depreciation was 100% many CPAs just marked it all as land improvement and took 100%. I get that. In 2023, the same thing happened but it was 80% bonus. Now in 2024, bonus is 60%. You are leaving money on the table if you don’t do cost segregation. In many cases it’s $300,000 – $500,000 you’re leaving on the table by not doing cost segregation.

I’ve had a custom tool built to specifically calculate and show you the year by year tax savings you’ll get from doing cost segregation vs. not doing cost segregation and just letting your CPA mark your depreciation schedule as all 15 year class life and taking 60%. Take a few minutes and learn as I try to demo this new calculator. If you have a property and would like me to run the numbers, let me know. Check out the 4 minute video explanation below.

Everyone who buys a tunnel car wash in 2024 and who has basis, should do a cost segregation study. Of course consult with your own tax advisor, but get armed first with the information. I think I’m the only one that I know of that has this tool to calculate this for you. If you purchased your car wash with all 1031 exchange funds then there’s no basis. If you purchased it partially with 1031 funds and have new debt / money, there may be enough basis to study. Let me run the numbers. I work all over the country.

If you aren’t doing cost segregation on a 2024 Tunnel Car Wash you may be leaving $100k on the table.

#costsegregation hashtag#bonusdepreciation #carwash #tunnelcarwash #landimprovements #accelerateddepreciation #taxbenefits #taxsavings #diminishedvalue #cssi #cssiservices #johnmurphy #johnmurphycssi #johnmurphycostseg #costseg #costsegbuilding

Olde Lancaster Town Center in Charlotte Trades for Nearly $15 Million – Aline Capital

Congratulations to Cheyenne Putnam of Aline Capital in representing the seller in getting this large deal done in Charlotte, NC. The retail center sold for $14,995 according the release from Aline Capital on LinkedIn – published below.

Aline Capital is a commercial real estate advisory firm in Greenville, SC. Cheyenne Putnam is their Director of Retail. It’s nice to see there are some big deals still getting done.

Industrial Outdoor Storage (IOS) Rental Rates in Columbia, SC

Michael Dodds is a well established commercial appraiser in South Carolina’s midlands and he published some very insightful information on LinkedIn the other day about Industrial Outdoor Storage.

Industrial Outdoor Storage has become quite the asset with a number of big players getting involved and either buying these up or developing them. Just remember if you own one of these, you should reach out and have us run some numbers. These do incredibly well from a cost segregation standpoint.

If you’re looking for a commercial appraiser in the midlands of South Carolina, here’s Michael’s website.

 

John Murphy Cost Segregation CSSI, LLC

Mobile Home Parks and Cost Segregation

If you own a mobile home park and plan to keep it for the next few years or longer and if you haven’t done cost segregation, you may want to take a look at it. Mobile home parks are profitable so even if this is a passive income stream for you, you likely owe taxes each year because of this investment. If you do cost segregation, you’ll be able to defer taxes for years most likely. I’d be happy to talk with you about it.

How Cost Segregation on a Step-Up in Basis Can Benefit Heirs and Surviving Spouses

Step-up in Basis – we’ve all heard this term but I suspect people are missing out on an opportunity when someone who has an ownership stake in a building dies and his/her interests passes to the rightful heir or spouse in many cases.

I’ve mentioned before that if an owner dies and if there is still decent depreciable basis remaining in the buildings he/she owns, the CPA or tax attorney or executor hopefully are aware enough to inquire about getting a cost segregation study done on that buildings or buildings before the estate files the final tax return. This is a sweet deal for the heirs and might put an extra $10k, $50k, $100k in their pockets instead of going to the IRS.

But what about when a married couple owns investment property or commercial property together and one of them dies. Let’s look at an example. (And with all of this, I’m not a CPA nor an attorney… if you find yourself in this situation, you will need to seek your own tax and legal advice. Some states may have different rules as to how this is applied).

Couple purchased a commercial building 20 years ago for $1,000,000. One of the spouses dies. An appraisal is done and it’s worth is now $3,000,000. The surviving spouse gets a step-up in basis. In this case they get 50% of the appreciated value and the initial purchase price. So the step-up is $1,500,000. Because they have owned this property for 20 years, they had depreciated it already by 50% and it’s likely quite profitable at this point. The surviving spouse can do a cost segregation study on that new step-up in basis and likely save a significant amount on their taxes. Just for simple math, let’s say 20% of it can be accelerated…that’s $300,000 depreciation deduction that they could take based upon studying the step-up.

If you live in one of the community property states, I understand that it might be that once one spouse dies, all of their property gets a step up in basis – check with your tax advisor on that one.
hashtag#stepupinbasis hashtag#taxes hashtag#capitalgains hashtag#depreciation hashtag#estates hashtag#estateattorneys hashtag#CPAs hashtag#taxprofessionals

How Commercial Real Estate Brokers Can Use Cost Segregation to Close More Business

I work with a lot of commercial real estate brokers around the country but it’s just a tiny fraction of the number of CRE brokers who should be using cost segregation in their practices. It’s a missed income opportunity for the broker but more importantly it’s a missed opportunity to provide a very powerful value-added service that will have a material positive impact on your commercial real estate client. You also leave yourself exposed that someone else might call them up to make mention of it and start to build a relationship with that client.

As the key point of contact in a transaction and tip of the spear so to speak, commercial brokers work with buyers of commercial real estate to go through the financials, due diligence, market opportunity and pricing of all kinds of buildings. Why not discuss cost segregation with your clients at the same time? It’s a key part of owning commercial real estate. It can help improve an owner’s cash flow, reduce their immediate tax liability and help them have a better understanding of their building. It definitely affects the proforma in a positive way. You don’t need to be the expert. You should have a partner in the business to whom you can connect your client for a no cost, no obligation consultation and estimate.

If you’re a commercial broker and you don’t have a trusted partner for cost segregation, consider giving this short video presentation a watch. It’s 11 minutes long. I provide professional, engineering-based cost segregation services all over the country. Our firm is one of the largest and oldest in the country. We have experience with all properties types and classes in all 50 states. We’ve now successfully completed more than 50,000 studies.

By implementing cost segregation into your commercial real estate practice, you will not only get paid referrals from us, but you will gain new clients and close more deals. It will happen. Everyone’s looking for an edge and I’m telling you, THIS will give you an edge in the marketplace. Give this a watch and then reach out to me for a conversation.

If you go back to my home page, you’ll see a map of many of the properties we have studied in the past couple of years. Under the “Projects Completed” tab on the home page, it has a drop down so you can see pictures of the buildings our team has studied. Many of these projects have come to us by referral from commercial real estate brokers. Some also come to us from CPAs and building inspectors.

Reach if you’d like to talk about this program to incorporate cost segregation into your commercial real estate practice.

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