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.
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.
Align Capital Partners announces acquisition in the tax space of CSSI – Cost Segregation Services, LLC and TaxIncennovations. It’s a growing professional services offering with cost segregation, 179D energy savings and Research & Development tax credits.
As a rep for CSSI I can say that Align Capital Partners has brought some good change to the company. We are more responsive and getting more systematized for scale. I’m looking forward to the growth ahead.
Tenant Improvements – Photo Credit John Murphy, Cost Seg Building
Are you looking to do tenant improvments (TIs) to your building? Are you aware that the Tangible Property Regulations (TPRs), i.e. repair regulations, are to your benefit as a building owner? There are specific guidelines to help building owners save money on their taxes when it comes to TIs. Many times we see that owners have capitalized items that could have been expensed. Not only is that the incorrect way to account for some items, the IRS doesn’t want you to do it that way and it’s costing you quite a bit in lost tax savings.
The words lessee and lessor in §1.162 and §1.263(a) (Tangible Property Regulations) are mentioned over 200 times. The TPRs are a dramatic change for landlord and tenants regarding the capitalization or expense deduction of tenant improvements.
There are two critical general rules under §1.263(a) for leased property and improvements.
The first general rule is that an improvement to a unit of property is NOT a separate unit of property from the building. The second general rule is if the landlord’s expenditure is NOT a restoration, adaptation, betterment, or improvement (RABI), then it is repair and maintenance. The unit of property for a taxpayer who is the lessee of an entire building is each separate building, its structural components, and building systems.
If the lessee leases only a portion of a building (such as an office, entire floor, or specified square footage), the portion of each building and the building systems associated with ONLY the leased portion is the unit of property. If the lessee pays for the tenant improvements, the lessee must generally capitalize the related amounts, which it pays to improve the tenant space. The only exception is if §110 applies. §110 is a construction allowance received by the lessee for the sole purpose of the improvement or when the improvement constitutes a substitute for rent.
In other words, tenants who do not lease the entire building and pay for their tenant improvements have their separate unit of property, and those improvements must be capitalized under the UNICAP rules §263A.
If the landlord pays for the tenant improvements, they must be put through the RABI rules (restoration, adaptation, betterment or improvement) to determine if the tenant improvements are a repair and maintenance item or if they must be capitalized. Generally, an amount capitalized as a tenant improvement is not a separate unit of property from the building. If the landlord’s tenant improvements are not a separate unit of property from the building, the landlord can compare the expenditure against the whole building, building structures, and building systems. The result will be that most landlord tenant improvements, (beyond the initial tenant improvements capitalized for each space), will be classified as a repair and maintenance expense.
Example
The landlord owns and operates two buildings. One is a 4-story office building of 40,000 square feet with the first floor consisting of retail space. The other building is a stand-alone 10,000-square-foot retail building. The landlord has two new tenants move in 2022. Tenant A leases the first floor of the 4-story building. Tenant B leases the stand-alone building. The landlord already had prior tenants in those spaces and has tenant improvements on its books for both of those building spaces. The landlord tears out the previous tenant improvements and does extensive new tenant improvements for both tenants.
Conclusion
The landlord can expense the tenant improvements for Tenant A in the office building but must capitalize the tenant improvements for Tenant B. The reason he can expense the TIs for the office building is that the space being renovated consists of only 25% of the building. The Tangible Property Regulations allow that if you are improving less than 30-35% of the building that those costs might be able to be expensed instead of capitalized. However, we will often see that owners have indeed capitalized such items.
Regarding Tenant B, the landlord must capitalize those improvements because because it’s 100% of the property. However, they can do a partial asset disposition (PAD) and get a significant tax deduction for the removal of those previous tenant improvements that had been in the building. PADs must be completed in the tax year in which the work (improvement / renovation) was done.
So what’s the difference between these two buildings? The landlord replaced a large physical portion of the stand-alone building that B occupied but only improved 25% of the building that tenant A was to occupy.
If you are a building owner and you are doing tenant improvements, reach out to consult with me at no charge. We can discuss your situation and see if it makes sense to expense or capitalize your improvements and whether or not it might qualify for a partial asset disposition.
Welcome to my new site! My goal here is to provide education, insight and information about the complicated world of cost segregation. The fact of the matter is, while it is a very complex process for those who do the work to study the buildings, it does not need to be particularly complex for the building owners and investors considering having a study done on their building(s). There are plenty of nuances about this part of the tax code but that’s what I’m here for as well as the team of people I work with along with your CPA and/or tax advisor.
My experience is that it’s probably less than 2% of building owners have applied cost segregation to their buildings. 80-90% of the owners I speak with are not familiar even with the concept. The majority of commercial brokers I speak with have a bit more knowledge of cost segregation but not enough to truly see the value it might provide their clients. Most CPAs don’t seem to utilize cost segregation in part I think because they don’t have a trusted source to get the work done for their clients. My hope here is that with this site, I can reach tens of thousands of building owners, investors, commercial brokers and agents, CPAs and other tax professionals and help them get their questions answered…and get their much deserve tax savings!
Thanks for being here. I’ll try to keep the content fresh and current.
