I happen to have been driving by this one regularly as I saw the parcel being developed along Butler Road in Mauldin / Greenville area. So it was nice to get the call from one of the brokers involved in selling the building to see if I could run some numbers for the new owner for cost segregation study.
These buildings are very nice. I enjoy working with brand new buildings – who doesn’t, right?
This one is just getting underway so I don’t have any ballpark results to share but I do expect that it will perform quite well. Medical offices generally do very well with studies. There is often lots of specialty plumbing, electrical, lighting etc. that get identified as 5 year class life property. Whereas most “offices” seem to produce maybe 8-12% for 5 year class life property, most of the medical offices I’ve been working on are seeing 18-20% for the 5 year. 15 year will do fine of course as there is a decent parking lot that surrounds this building.
Photo: John Murphy, Cost Seg Building – Hotel Hartness
I had the opportunity to attend the luncheon today at the Hotel Hartness with CREW Upstate. The topic for today was sustainable building in commercial real estate. Hotel Hartness is a gorgeous new building and is an example of adaptive reuse for construction development.
We had three panelists talk about what they see as the trends itin sustainability were for CRE. Lots of discussion about LEED buildings and LEED credits.
CREW Upstate is a membership organization with the purpose to help women succeed in commercial real estate. There are a few of us men who are part of this to help support their efforts. There’s a lot that goes into commercial real estate and this group is comprised of brokers, bankers, insurance pros, engineers, architects, designers, inspectors, lawyers, property managers, financial analysts etc…I’m sure I’m missing some professions.
Here’s a picture of the panelist we had speak today. Jennifer Wolf was unable to make it.
One of the things I left with was that Diane Coleman had mentioned that there is now LEED 5 which as I understand is the latest iteration of LEED being proposed. Right now they are taking comments from the public from April 3 – May 20, 2024. You can find more at the link I just posted above for LEED 5.
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.
Many of us thought this was a done deal. In fact, I had thought for some time that Congress would extend 100% bonus depreciation. Part of me thinks they might eventually make it permanent as part of the tax code but there are many in Congress who like to have things like this to negotiate for other deals. If that’s the case, they probably won’t make this permanent.
The House of Representatives passed their bill about 10 weeks ago now. The Senate is still sitting on the Tax Relief for American Families and Workers Act. With all the wrangling going on over Ukraine, Israel and US border funding, things seems to be stuck in the Senate.
I’m so focused on commercial real estate that it hasn’t really dawned on me how this bill impacts other industries. Apparently this is a very big deal for American farmers and they also want this passed.
Most building owners who I know have opted, as they normally do, to extend their tax returns. This year it’s beneficial so they can see if they might end up getting a nice bump from 80% to 100% for their 2023 tax returns.
Photo: SVN Blackstream Greenville, SC – John Murphy presenting cost segregation to CRE brokers
One of the things I enjoy about the work I do is getting an opportunity to speak with commercial real estate brokers. I can do this for residential brokers as well as they will often be working with investors or they might be buying their own property.
If you work at either a residential or commercial real estate brokerage and are looking for a speaker for your meetings, I’d be happy to come in and speak as long as you’re within a reasonable driving distance for me. I’m based in Greenville, SC so I certainly anything here in the Upstate is accessible. Also, the Charlotte metro and Columbia are only 90 minutes away.
Here’s a presentation I recorded to help commercial real estate brokers understand cost segregation.
Building owners….did you know that you could use an cost segregation ESTIMATE to help you manage your cash flow and perhaps pay less in quarterly tax payments or year end payments? How? Follow along…
When we provide an owner with an estimate, we are almost always conservative in our projection. If we say we believe that we’ll be able to identify say $200,000 in additional increased accumulated depreciation expense, we’ll normally hit at least that number 96-97% of the time. Occassionally the actual results come in a bit lighter.
But let’s say you owe a quarterly tax payment of $15,000 this quarter. You own a building but haven’t done cost segregation on it yet. Your building is profitable and the reason you own the tax money is in a big part because of the commercial real estate you own or the business you operate at the CRE building you own. You contact us. Our team done an initial analysis and says we can identify $200,000 in depreciation. Let’s say your tax rate is 32%. And let’s say you put this building into service in 2023 so bonus depreciation is 80%. Here’s the math:
$200,000 in depreciation x 80% (bonus depreciation) x 32% (tax rate) = $51,200 in estimated tax savings. We will provide you with a nice PDF for your records. You can use the depreciation expense expectation in the calculations you and your tax professional run to figure out what your quarterly payment might need to be. It could be that our estimate will wipe out your quarterly tax obligation. In this scenario noted, it very well could have done that.
This strategy can be used at any point in the year. It doesn’t just need to be reserved for year end tax planning. Reach out if you have questions and would like to discuss. John Murphy, Cost Segregation Specialist, 864-276-1448
In talking with various property management companies, they often keep track of all kinds of things about an owner’s building…expenses, repairs, inspections, improvements, life expectancy on components and regular review of the property. Many also keep the books as well and know the profitability of the owner. They may or may not include the tracking of the property taxes, debt service and depreciation.
But that said, as managers of the property to help the owner maintain a profitable business, in my opinion, they should be having conversations with their owner clients and find out if they have done cost segregation or not for the building for tax savings. Cost segregation can help with profitability and cash flow – right in the wheelhouse of most property managers.
Property managers should also remember that if there are significant improvements done to the property, they should consider studying those improvements – partial asset disposition (PAD) and cost segregation. There is often significant tax savings for the owner if they do this after a significant renovation ($100,000+). There are some rules of course that must be followed but it’s important to look into it. If the building has been owned for at least one tax year and they do big improvements, it might qualify for PAD. PAD allows for a tax deduction in the tax year in which the work was done. It also removes basis from the depreciation schedule as the property that has been thrown out is calculated and removed from the schedule. That way the owner doesn’t end up being subject to recapture tax for property that is now longer part of the building. It’s a 2 for 1 tax benefit. The vast majority miss this from what I can see.
Property managers, as trusted advisors to property owners, can play a crucial role in identifying opportunities for tax savings through cost segregation and PAD. By proactively engaging in conversations with their clients about these strategies, property managers can help owners maximize their tax benefits and enhance the overall profitability of their investments.
Many property managers across the country are part of our referral partner program where they can earn a referral for each study that we do for their clients. If you’d like to learn more, please reach out to me and I’d be happy to discuss. — 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.
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.
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.
