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.
Wonder how they get these big MRI machines into the hospitals? Check out this video where they are installing a new 16,000 pound MRI unit into a new tower at Torrance Memorial Medical Center in Torrance, CA.
I was searching to try to understand more about what goes into the walls to be able to accommodate such a device. They do talk about the non-magetic metals that are throughout the room for the outlet covers, screws, cabinet handles etc. It was also very interesting to see that interior walls were lined with copper which they said blocks other radio frequencies from outside the building.
Building Product with special tax status that few know of yet. Green Zip Tape is something every commercial developer should be considering to lower taxes, increase cash flow while being environmentally friendly.
For example…let’s take a $50MM project. They could see an additional $5MM move from 27.5 / 39 year class life to 5 year by using GZT. That’s nearly a $2MM income tax savings over 5 years. The tax benefits of building with GZT transfer to the new owner. This will be helpful in marketing the property. On top of that you’ll have those who are just thrilled about the sustainabilty / green building components of your building. The cost is a fraction of the benefit.
The IRS gives Green Zip Tape a special tax status because it helps eliminate sheetrock ending up in the land fills when owners need to renovate. The patented technology in the tape allow is to be removed easily from the sheetrock without causing a bunch of damage. The sheetrock panets can then be removed and reused so you end up with removable panels at a fraction of the cost. And you get the tax benefits! It’s genious!
Renderings by Johnston Design Group and NR Investments.
The city of Greenville’s Design Review Board has given the green light to new site plans for Gracie Plaza, which will be a transformative project for the City of Greenville and will set the tone for Greenville’s Gateway corridor.
The developer for this project is Miami’s NR Investments which is a major player in south Florida so it exciting to see them bring their work here to Greenville. Johnston Design Group out of Greenville is the architect for this remarkable building and project.
This building while being the tallest in the city, will be really the first thing one sees I believe when they enter the city from 385. Right now this part of the city is very uninspiring. Bon Secours Wellness Area in located right there and there are a number of other smaller, generally older buildings. There’s a lot of traffic that passes through this area.
The Upstate Business Journal has been doing a great job of covering the various iterations of Gracie Plaza. Be sure to check out there stories.
Some key points about Gracie Plaza:
Two towers – 24 and 29 floors
342 apartments
363 space parking garage
12,000 SF of commercial space for restaurants and creative studio spaces
The building will be located on the Greenville Memorial Auditorium site.
There is still more work to do with the permitting process before NR Investments fully has the green light to move forward but it’s looking good for them and for the City of Greenville.
Had a couple of conversations this past week as well as reviewed some depreciation schedules and more often than you would think, we see schedules that have the Airbnb or VRBO (STR) listed as a 27.5 year asset. It’s not. It’s considered more like commercial and gets treated as such. So, short-term rentals like Airbnbs and VRBOs are 39 year assets. Keep that in mind as you are forecasting your depreciation.
Should you study your short-term rental? Well, that depends. Are you going to hold it for at least a few more years? Is it profitable? If it’s not profitable, are you managing the property so that you might be able to utilize the depreciation to offset your other income? Be sure to discuss this with your tax advisor. We can always run the numbers for you but then you need to consult with your own advisors to see if it makes sense to do a study. No need for you to spend $2,500 – $5,500 or so to get a study done only to find out you really can’t use the depreciation. That said, we study a lot of Airbnbs and VRBOs. The cost is not a lot of money for the tax benefits you receive. Many owners see a 10x return on their investment in the study.
Reach out to me if you’d like to discuss. Feel free to also check out the other site I’m building over at Cost Seg Estimate.
I was talking with a friend today and we aren’t sure why the Biden Administration is putting forth proposals to raise taxes as we head into an election, but apparently that is what they are doing. In some ways the changes are quite significant and when it comes to real estate investors and commercial property owners, if these become law, the impact will be material.
The Money Cruncher, CPA has been publishing some excellent information on Twitter. Below is a link to his thread that is must reading for real estate investors, brokers and owners to be aware of what might be coming down the pike.
Biden's tax proposal could wreck real estate investors.
I went through 256 pages of his proposal to analyze the impact.
Here is all you need to know:
— The Money Cruncher, CPA (@money_cruncher) May 15, 2024
Given that the Republicans currently hold the House of Representatives, it seems unlikely that this will get passed. But that said, if the Democrats win the White House, keep the Senate and win the House, this could get enacted early in 2025.
Do you operate a short-term rental such as an Airbnb or VRBO? Is it profitable? I.e. are you having to pay income taxes because you are turning a nice profit on your STR? In this blog post, we’ll explore what cost segregation is, how it works, and the benefits it can offer to Airbnb and VRBO owners.
What is Cost Segregation?
Cost segregation is a tax planning strategy that allows property owners to accelerate depreciation deductions by reclassifying certain property-related expenditures. Instead of depreciating the entire property over the standard 27.5 or 39 years (for residential and commercial properties, respectively), cost segregation identifies and reclassifies specific components of the property into shorter depreciation periods (5, 7, or 15 years). These components can include items like landscaping, fixtures, and certain building improvements. BTW, short-term rentals are considered 39 year property.
How Does Cost Segregation Work?
A cost segregation study is typically conducted by a team of professionals, including engineers, architects, and tax advisors. They analyze the property in detail to identify which parts of the property can be reclassified for accelerated depreciation. The study involves:
Reviewing Architectural Plans and Costs: Examining blueprints, invoices, and other documentation to identify qualifying assets.
Site Visit: Conducting an on-site inspection to verify and document the assets.
Reclassification: Reclassifying the property components into appropriate depreciation categories.
Report Generation: Providing a detailed report that outlines the reclassified assets and their depreciation schedules.
Benefits of Cost Segregation for Airbnb and VRBO Owners
Increased Cash Flow: By accelerating depreciation, property owners can significantly reduce their taxable income in the early years of ownership. This reduction translates to increased cash flow, which can be reinvested into the property or used to expand the rental business.
Tax Deferral: Accelerated depreciation provides a deferral of tax liabilities. By reducing taxable income now, owners can take advantage of the time value of money, allowing them to utilize funds that would otherwise be paid in taxes for other investments or property improvements.
Enhanced Property Value: Reinvesting the tax savings into property improvements can enhance the property’s value, making it more attractive to potential renters. Upgraded properties can command higher rental rates and improve occupancy rates, further boosting income.
Improved Competitive Edge: The savings from cost segregation can be used to offer competitive pricing or to enhance amenities and services, making the property more appealing compared to other listings in the area.
Compliance with Tax Laws: Cost segregation is an IRS-approved method of accelerating depreciation. By conducting a professional cost segregation study, property owners ensure they are in compliance with tax laws while maximizing their deductions.
Flexibility in Planning: The insights gained from a cost segregation study can aid in future tax planning and financial decision-making. Knowing the detailed breakdown of property components and their depreciation schedules allows for better forecasting and budgeting.
Is Cost Segregation Right for You?
While cost segregation offers significant benefits, it may not be suitable for every property owner. One of the things we often will say is that if the owner is planning to hold the property for at least 3 more years, cost segregation will often make sense. If you’re going to hold shorter than that, then it probably doesn’t make sense. We always recommend you consult with your own tax advisor when it comes to cost segregation. The initial cost of the study and the complexity of the property are important considerations. Typically, properties with a cost basis of $200,000 or more are candidates for cost segregation. The more expensive the property, the better the results will be with cost segregation. Depending upon the size, cost and complexity of the property, these studies can often range from about $2,500 to $5,500.
Conclusion
Cost segregation is a powerful tool that can unlock substantial tax savings and enhance the profitability of short-term rental properties on platforms like Airbnb and VRBO. By accelerating depreciation, property owners can increase cash flow, defer taxes, and reinvest in their properties to gain a competitive edge. If you own a short-term rental property, it’s worth exploring whether cost segregation can help you maximize your investment and take your rental business to the next level.
Partial Asset Disposition (PAD) is a tax strategy that can be highly beneficial for commercial property owners, especially during renovations or upgrades. Essentially, PAD allows property owners to decrease their taxable income by writing down the depreciable basis of certain assets that are removed and disposed of during property renovations.
When a commercial property undergoes renovations, certain existing assets may need to be removed—anything from lighting fixtures and HVAC units to doors, windows, and even structural elements like roofing. Under PAD, the cost of these removed items, including the expenses associated with their removal and disposal, can be written down. This write-down provides an immediate tax deduction for the property owner in the year the renovation occurs. It’s crucial to note that this is a time-sensitive opportunity: if the write-down is not applied in the tax year during which the renovation happens, the chance for that deduction is permanently lost. It’s a use it or lose it tax deduction.
The benefits of implementing PAD extend beyond immediate tax relief. At the time of sale of the property, PAD can lead to permanent tax savings by reducing the overall basis of the building, thereby decreasing recapture tax on property that is no longer part of the property.
This strategy is particularly relevant for a range of commercial property owners, including:
Retail lessors who might acquire assets left behind by tenants.
Property owners undertaking significant renovations, repairs, or improvements in areas such as roofing, lighting, parking lot resurfacing, door and window replacement, floor resurfacing, and both interior and exterior painting, where costs exceed $50,000.
Owners who have demolished parts of a facility as part of an improvement or renovation project with costs over $50,000.
Those who have acquired, constructed, or expanded facilities since 2000.
Businesses that have recently upgraded or replaced major operational equipment within the tax year.
Pass-through entities that may be considering a sale soon, especially if there has been significant appreciation in the value of their facilities or operational assets.
The IRS’s final tangible property regulations under Section 263(a) offer comprehensive guidelines on how these assets should be handled for tax purposes. Tax professionals are encouraged to guide their clients in making an annual election to claim these deductions, ensuring that they do not miss out on substantial tax benefits.
To accurately assess and claim these deductions, conducting an engineering-based cost study is advisable. This approach provides tax professionals with precise, defendable calculations that can be directly applied to a client’s tax returns, maximizing the potential benefits of PAD. This detailed evaluation not only supports the claim but also ensures compliance with tax laws, making the deduction process smooth and justified. As always, be sure to consult with your own tax advisor.
Buying a strip mall as an investment? Do you know if there has ever been a drycleaners in that strip mall before? Were they cleaning on the premises or was it strickly just a drop off and pick up store?
This a very informative string of Tweets from The StripMallGuy about concerns regarding dry cleaning tenants and if they have every used the space you are considering buying as you evaluate a strip mall. He has an entire thread and I would encourage you to read it if you’re in the business of buying strip malls. And to his point…if you are a seller trying to sell a strip mall, at least consider getting a Phase 1 study completed prior to listing the property. It will make life easier on everyone and not waste buyers’ time nor their brokers. Give him a follow on Twitter. He always has valuable insights. You can follow me as well at @costsegbuilding.
Tired of strip mall owners burying their heads in the sand about the dry cleaner issue.
Wasting the broker's time. Wasting the buyer's time.
Kills more of our deals than anything else, and it's not even close.
I often get asked exactly how can a building owner benefit from doing cost segregation. Lots of times this comes up in conversation with commercial real estate brokers. I’ve recorded a pretty straightforward 4 minute video that hopefully will be of help to both CRE brokers representing building owners buying property as well as for commercial property owners.
We always recommend that owners should consult with their own tax advisors before moving ahead with a study. I’m not given tax advice – just an example of how an owner may benefit by doing cost segregation.
Get an estimate for your building. Rather than having a conversation with your tax advisor as to whether or not you might benefit from this without a formal estimate in your hands is just guesswork. Too many times the tax professional will say I don’t think it’s worth it. But when you have the numbers in your hand and can discuss the situation intelligently, then the parties can make an informed decision instead of guessing based upon the tax professionals prior experience or opinions of this tax strategy.
BTW, this doesn’t need to be done just on $1-$2MM+ buildings…we study all kinds of buildings – big and small – inexpensive and expensive. If you have a commercial property or residential investment property with a cost basis of more than $175k, it’s worth running the numbers. I work all over the country. There’s no cost or obigation to have us run the numbers. I publish lots of information on my blog at www.costsegbuilding.com. Find me on Twitter, Instagram and Youtube under the handle – @costsegbuilding hashtag#costsegregationhashtag#commercialrealestatehashtag#commercialrealestatebrokershashtag#CRE
This post is especially for commercial real estate brokers who own buildings and have extended their 2023 taxes. Assuming you have some tax liability for your earnings in 2023, if you own a commercial building(s) and/or residential investments and you have not done cost segregation on those buildings, this would be a great time to see if this can work for you. This may be especially beneficial if you have a significant tax liability and if you are planning on holding your buildings. This also goes for those who aren’t CRE brokers but own commercial real estate. If you own a profitable building that you plan to hold for another 3 or more years, why not look at the impact a cost segregation study could have on your tax liability and cashflow for the property.
Get an estimate in your hands so you can have an informed conversation with your own tax advisor to see if doing a study now makes financial sense.
