Cost Seg Building

A Blog About Tax Savings for Building Owners

Author: John Murphy (Page 6 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.

Cost Segregation for Small Industrial Buildings

April 4, 2024 /
Photo Credit: John Murphy, Cost Seg Building

Got a call the other day from commercial real estate broker who was wondering if it made sense to study small industrial buildings. There are lots of 5,000 to 10,000 SF office warehouses scattered throughout the country. We study these all the time and they are beneficial for the owners.

Let’s say an owner buys an 8,000 SF office warehouse. It doesn’t really matter what year it was built but there are lots of these still out there from the 1980’s let say. Typically they don’t have a lot of 5 year property typically associated with office space build out, but they do often have a lot of 15 year class life property which would be the land improvements – parking lots, driveways etc.

In this case, let’s say the office warehouse cost $600,000 and went into service July 1st. It’s estimated that the land us worth $75,000. That leaves $525,000 for the cost basis to be studied. Normal depreciation is spread out over 39 years so it would be $525,000 / 39 = $13,461 per year. Since this went into service on 7-1, the owner would be entitled to half the year’s depreciation or $6,730.

But let’s say the owner decides to do a cost segregation study and have it applied to his taxes. If it turns once the building is studied that 5% of the property is 5 year and 12% is 15 year property that ends up being a significant depreciation expense. (Note: every building is different).

Depreciation:

  • 5 year class life = 5% or $26,250
  • 15 year class life = 12% or $63,000
  • Total Depreciation: $89,250

In this particular situation, the owner will be able to take 13x more depreciation than he would have had he not done cost segregation. This is provided the building qualifies for 100% bonus depreciation. Let’s also figure that this owner is an owner operator and owns his operating business as well as the real estate. He can use the depreciation to offset his operating entities income. This can be done if he “groups” his building and operating entities together in the first year he files taxes for the building. Be sure to consult with your tax advisor on this.

The depreciation of $89,250 multiplied by the owner’s tax rate (let’s say 32%) equals a tax savings of $28,560. That’s real money. The study will cost a fraction of this. It’s an awesome return.

https://infogram.com/national-foc-rankings-1h9j6q7g0zldv4g
https://infogram.com/national-foc-rankings-1h9j6q7g0zldv4g

Hub Clemson Wins Initial Approval by City Council – Massive Housing Project Moves Forward

April 3, 2024 /
Rendering from UpstateToday.com – Hub Clemson by CoreSpaces

Clemson, SC – The City of Clemson, SC with a vote of 4-3 approved initial plans for this massive student housing project in Clemson. It sounds like there has been quite a bit of backlash against the project but the city and the University of Clemson could stand to have a lot more student housing. We have friends who have kids at the University and our son is hoping to attend it in the near future. We’ve heard the horror stories of students trying to find places to live.

This will be a very significant project by any university standards. No doubt there are still more hurdles to clear before the project is fully approved but this will be in interesting one to watch.

Here’s a good article from UpstateToday about the public meeting last night to discuss the Hub Clemson student housing project.

CoreSpaces is the student housing developer. Here’s a video they’ve posted to Youtube that does a great job of showing what the create with these college Hubs.

Retail Strip Centers and Cost Segregation

March 29, 2024 /
Retail Strip Centers or Strip Malls are great candidates for cost segregation

Retail strip centers are a highly sought after asset class for commercial real estate investors. I think part of the reason they are liked is because you typically have anywhere from 4 -15 tenants depending upon the size of the building. This spreads out the risk with the cashflow so that if one or two tenants vacate, it’s usually not a huge burden. This is not the case of course if you have one of the tenants taking up a big part of the space. But normally when that happens, those tenants are on a significant, long-term lease.

Our firm studies lots of of strip malls or retail strip centers. Cost segregation for retail strip centers is an excellent idea for the owners. Besides the big depreciation expense that gets generated and of course if the main thing people hire us for, it’s really helpful to have a breakdown of all of the sytems and components of your buildings. Retail strips, just like other commercial property, require constant upkeep, maintenance and repair. If you have things identified, it then makes it easier to make decisions about expensing vs. capitalizing when it comes to repairs or improvements.

In terms of the study results, normally we see that the 5 year property might be 8-10% of the building cost. Sometimes if the property is dominated by a tenant that might be something like a Dollar-type store, those interiors are pretty sparse by design. Those might end up being 5-7% that get identified as 5 year property. But these properties tend to have ample parking and that’s where the big payoff comes in with cost segregation. It’s not uncommon to see these buildings have 10-20% of their overall cost tied to the land improvements. Land improvements are 15 year class life property and include things like the parking lot, lighting, landscaping, patios, signage etc. Because the way bonus depreciation works, this class life qualifies for it. Bonus Depreciation schedule is noted below.

Bonus Depreciation schedule as of 3/29/24 – subject to change by Congress any minute now as they look to bump bonus depreciation back up to 100% through 2025 but that has not yet been approved.

Buildings in-service date

  • After Sept. 27, 2017 and by Dec. 31, 2022 – 100% bonus depreciation
  • Jan. 1, 2023 – Dec. 31, 2023 – 80%
  • Jan. 1, 2024 – Dec. 31, 2024 – 60%
  • Jan. 1, 2025 – Dec. 31, 2025 – 40%
  • Jan. 1, 2026 – Dec. 31, 2026 – 20%
  • Jan. 1, 2027 – bonus depreciation goes to 0.

If you would like to talk about your building or get a quote for cost segregation, please don’t hesitate to reach out. There’s no cost or obligation. I’m not going to charge you in 15 minute increments to discuss. The consultations are free.

Cost Segregation for Charlotte Commercial Real Estate

March 28, 2024 /

If you own commercial real estate in the Charlotte, NC metro and if you haven’t done a cost segregation study for tax savings, please feel free to reach out and give me a call. I’m based out of Greenville, SC just 90 minutes away. I can work anywhere in the U.S.

Recently we studied this new construction building that is Aspen Dental and Clear Choice Dental Implant Center. These kinds of retail buildings perform very well with cost segregation because they are often built out quite nicely with internal finishes many of which are considered 5 year class life. Also since this was a new developed parcel, given the requirements for parking, the 15 year class life property also is typically quite large and benefits the owners.

As I write this, Congress has not yet officially passed the bill that would allow bonus depreciation to go back to 100%. As things stand today, any properties placed into service in 2023 get 80% bonus depreciation and those placed in-service in 2024 get 60% bonus. That means for all class life property identified as 20 years or less, the owners can take 60% of that cost as a depreciation expense.

John Murphy, CSSI, LLC 864-276-1448 / john.murphy@costsegregationservices.com

Cost Segregation for Dollar General Stores

March 22, 2024 /

I get asked this question quite a bit….is “this – insert building type or address” particular building a good candidate for cost segregation? And so I also hear this with Dollar General Stores. They are pretty basic. Generally if they are stand-alone buildings they are metal buildings with not a lot of finishing. That said, almost every commercial building that is profitable and has enough basis is usually worth studying. Dollar General Stores are no different.

I recently studied a couple of them for an owner recently and the studies turned out great for the owner. Every building is different of course but in general we might see about 5-6% of the cost be identified as 5 year class life and 10-20% identified as 15 year depending upon the size of the parking lot. The two I completed recently had the 15 year land improvements come back at 16 and 18%. That is significant especially given that 15 year can be taken as bonus depreciation. Remember, property eligible for bonus depreciation is those with class lives of 20 years or less. When we do our studies, we identify 5, 7 and 15 year property. For the tax year of 2023, if a building went intok service in this particular year bonus is 80%. (Note: Congress is currently considering revising this to take bonus back up to 100% at least through 2025 is what I’ve read).

The Franklin Executive Office Suites Greenville SC

March 19, 2024 /
Image Credit: Franklin Real Estate Development and the Upstate Business Journal

Franklin Real Estate Development has just opened these gorgeous newly renovated executive offices in downtown Greenville. Developer Kurt Wallenborn has done an outstanding job it appears on the renovation and restoration of this historic property. Upstate Business Journal has a story about the renovation.

Check out the office spaces offered at The Franklin.

1.5 Hours of Free Continuing Education for CPAs – March 26, 2024 at 10am Central

March 19, 2024 /

This is for the CPAs out there who might want to knock out a little CPE if they have the time. We’ll hold a webinar on Tuesday, March 26, 2024 at 10am central. CPAs can earn 1.5 hours of CPE – continuing education – at no charge.

Register here to be sure you get credit for attending.

The course is being provided by our team at CSSI, LLC, one of the nation’s leading providers of engineering-based cost segregation studies.

Dutch Bros For Sale Brigham City, UT

March 19, 2024 /

Dutch Bros is continuing to expand across the U.S. I had to post this as Daniel Herrold of Northmarq and his team are doing a great job all across the U.S. Anyway, this is a ground lease and if it’s structured that the new owner also owns the parking lot, this would be a phenomenal property for cost segregation.

Below is the link to Daniel’s post on LinkedIn.

https://www.linkedin.com/feed/update/urn:li:activity:7174067689185755137?utm_source=share&utm_medium=member_desktop

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