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
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Category: Cost Segregation (Page 1 of 3)
Another April 15th tax deadline has passed. Tax professionals everywhere will finally start to come up for air after having their heads down cranking out tax returns and supporting documentation. Many building owners extend their taxes and are looking for their tax advisors to review their cost segregation estimates to decide if they should move forward. I’m already starting to see the dam break meaning some CPAs are starting to respond again :).
If you extended your tax returns, you now have 6 months to get them completed. Actually corporate returns are due Sept. 15th and personal returns due Oct. 15th. If you have a building and are considering cost segregation, let’s connect and have our team run the numbers for you. There’s plenty of time to get these done. Most studies take about 4-6 weeks to get completed from the time we have all the documentation into our study team. There’s no cost or obligation for us to run the numbers for you. Give me a call – John Murphy 864-276-1448.
Looking for cost segregation services here in the Upstate of South Carolina? I’m happy to help. While I work all over the U.S. and can work in all 50 states, I happen to live right here in Greenville, SC.
I represent CSSI, LLC and we offer several services to help building owners and tax firms:
- cost segregation studies – engineering-based
- partial asset disposition studies
- 179D tax deduction – energy savings
- Research & Development Credits
- 3115s – we can draft as well as sign off on these forms when needed
CSSI, LLC has been in business for more than 20 years and we have completed about 50,000 engineering-based cost segregation studies saving our building owner clients a massive amount of money on their income taxes.
We are also a key provider of these services for hundreds of tax firms and advisors across the country.
Feel free to connect with me if you’d like to talk – 864-276-1448…or connect with me on LinkedIn or Twitter @costsegbuilding.
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.
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
Real estate investors who are buying and holding long term and mid term rental homes should look at doing cost segregation to saving money on income taxes. I do a lot of studies for real estate investors across the country. We are doing a number of them these days for investors in the Upstate of South Carolina as well as in the state of North Carolina. Upstate CREIA and Carolinas Real Estate Investors Assocation are two outstanding investor associations.
If your property has a cost basis of around $200,000 or more and if you are planning to hold the property for at least another 3 years, it’s highly likely you will stand to benefit from doing a cost segregation study.
The costs will generally range from about $2,200 – $3,500 depending up the size and cost basis of your property and whether or not you’ll need to file an IRS Change of Accounting form 3115. The 3115 form is used to let the IRS know you’re moving from straight line to accelerated depreciation. It’s used all the time. In fact I think we draft about a 1,000 of these each year.
But if you own a property, you might end up saving $5,000 – $10,000 after paying for the cost of the study. This works if you’re profitable and having to pay taxes on your rental income, or if you are considered a full time real estate professional. If your expenses and standard depreciation already wipe out your income, then doing a cost segregation study probably doesn’t make sense to do.
I get asked to come in and present to commercial real estate brokers, financial advisory firms, CPA firms and occasionally a college might ask me to speak to their accounting students. The the folks who are consistently really interested in learning more about cost segregation are the CRE brokers…as well they should.
This is not only easy money but it’s a great value-add service that you can tell your clients about which in turn might lead to another deal. How so? Let’s say you help a buyer purchase a new building. As part of your due diligence, you get an estimate for cost segregation. It’s likely the owner is not familiar with cost segregation. You might end up saving that owner $30, $50, $100k+ on his/her taxes. It might even be enough that they want to buy another building with you. You can earn a referral fee on business you send our way. Of course it’s nowhere near what you earn with real estate commissions but it all helps at the end of the day. Telling your clients about cost segregation and getting them an estimate is a win-win-win for everybody.
I recorded a presentation that I recently used to help educate many commercial real estate brokers. It’s not meant to be an in-depth study of cost segregation but hopefully provides enough of an overview to help you understand the power of cost segregation and why you should have a trusted source to help you and your clients maximize their building’s cash flow while minimizing the taxes for the owner.
If you’re looking for cost segregation services or studies in the Upstate of South Carolina, I can help. I’m based in Greenville and work with many building owners in Greenville, Spartanburg and Anderson to help them with their properties. We have saved owners a small fortune on their income taxes.
Our firm conducts an engineering-based cost segregation study that allows you as the owner to maximize the deductions you might have with your building(s) when it comes to depreciation. Reach out if you’d like a free, no-obligation estimate on what your income tax savings might be if you utilize cost segregation. We can do this on properties if they have been newly acquired as well as those that perhaps you’ve held for a number of years. Call me at 864-276-1448. John Murphy, CSSI.
Commercial building owners can use a cost segregation study results to eliminate or minimize their quarterly tax payments. These building owners can even just use an estimate or predictive analysis from a qualified cost segregation firm an apply that to the calculations for what their tax liability might be for their quarterlies.
As I write this today, the September 15th deadline is coming up late this week. As building owners and their CPAs make the final calculations for what the owner’s estimated tax bill might be, we can generate an estimate for that owner yet this week that would impact what that owner owes for his quarterly payment.
For example, let’s stay a business owner / building owner is expecting that he or she has to write a check to the IRS for $20,000 for his quarterly payment. This owner also owns a building that he has owned for a few years but has never done a cost segregation study. We can run an estimate this week and provide an idea what that owner might save on his taxes. Let’s say the estimate comes back and we believe he may save $30,000 on his income taxes if he applied it to this year’s tax return. If that’s the case, that $20,000 that he owes this week could stay in his checking account rather than being sent off to the IRS.
Please consult your own tax advisor. This post is not tax advice. Please reach out to me if you’d like for me to run an estimate on your building.
What kinds of properties are good for cost segregation? I get asked this a lot especially as I introduce the concept of cost segregation to commercial real estate brokers. The fact of the matter is, cost segregation works on any and all properties where the owner is receiving a rent or lease payment. With the firm I represent, we generally add one more qualifier and say that the basis or cost needs to be about $200,000 for it to make sense to study. And the reason for that is the minimum study will cost about $2,000 and if you have a $200,000 building – maybe an SFR – you might see a depreciation expense of $30,000 – $40,000. If you’re at the 24% income tax rate, that’s a tax savings of $7,200 or so. Sometimes we still do studies down to about $150,000 in cost basis and it’s still a benefit for the owner.
Cost segregation works on all kinds of property:
- Industrial
- Manufacturing
- Warehouse
- Office Warehouse
- Self Storage
- Cold Storage
- Office
- Retail Strip Centers
- Strip Malls
- Restaurants
- Fast Food Restaurants
- Auto Repair Shops
- Hotels / Motels
- Apartment Buildings
- Rental property – SFRs, Condos, Townhouses
- Short-term rentals – Aibnb, VRBO
- Gyms, Athletic and Fitness Centers
Determining if cost segregation is right for you is a fairly straight forward endeavor. You will always want to consult with your tax advisor about your particular situation. It really just becomes a math issue. You get an estimate from me and then discuss with your tax advisor. Does it make economic sense or not. It’s also not as expensive as you might have been led to believe. For most of our clients it is not a big set back and they typically see 10-20x return on the investment with us. That’s 1,000 – 2,000% return on your investment. It’s generally a no-brainer.