Cost Seg Building

A Blog About Tax Savings for Building Owners

Author: John Murphy (Page 16 of 17)

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.

Maximizing Tax Savings: A Strategy for High-Income Married Couples with Short-Term Rentals

March 9, 2023 /

Here is a strategy I’m seeing for married couples where one spouse has a big W-2 income.

Please consult with your own tax advisor. I cannot give tax advice. I’m only sharing what I’m seeing some other real estate investors do.

Want to take advantage of cost segregation and minimize your taxes but you’re not a full time real estate pro or investor?  Perhaps you’re a doctor, executive, a sales pro who has a big W-2 income who wants to get into real estate investing. Some who fit this category are purchasing STRs (Airbnbs, VRBOs) and managing them themselves. Generally speaking this would require that one’s spouse does the managing and not the person with the big W-2 income.  The IRS categorizes the STRs differently from long term rentals (i.e. single family rentals, duplexes, apartments etc).  The STR is considered an active trade or business. If you meet the IRS criteria as being actively involved in the property, you may be able to utilize the benefits of cost segregation and the large depreciation expense it generates to offset tax liability for the W-2 income. BTW, you don’t have to be making multiple six figures to make this work. This strategy could work for someone making less money. When I see it used, it’s often the big W-2 income earners who are doing this.

I was recently at an event where a CPA explained this strategy to a room full of real estate investors. It was discussed that they might consider converting a rental home to an STR to be able to take advantage of this.

Let’s say you buy an Airbnb for $425,000 – purchase price plus any improvements, furniture etc. The land is worth 20% ($85,000). That is deducted that since land can’t be depreciated which leaves a cost or basis of $340,000 which can be cost segregated. Depending upon the property, the study results would likely show that 20-25% of the $340,000 basis could be accelerated.  That is $70,000 +/- in depreciation expense that could be used to lower you and your spouse’s overall income by $70k. If your tax rate is 32%, that’s over $20,000 in income tax savings. The study might cost $2,500 +/- which is a deduction. This is a 10x return – 1,000% return on your investment. If you were to scale this up to say $1,000,000+ Airbnb, just multiply these tax savings by 2-3x and you can see why people do this.

If you are one of those couples who has a big income and wants to use real estate to help reduce your tax liability but neither of you are a full time real estate pro, then discuss this strategy with your tax advisor. If you fit this description and you have a short-term rental, reach out to me for a no cost, no obligation estimate. You’ll then have solid information to go back to your tax advisor to determine if doing a cost segregation study might end up saving you a small fortune on your income taxes.

#realestate #realestateinvestor #costsegregation #STR #shorttermrental #Airbnb #VRBO #W2 #W2Income #highincome #highincomeearner #taxsavings #taxes #incometaxes

Cost Segregation in South Carolina

February 10, 2023 /
Photo Credit: John Murphy, Cost Seg Building

If you’re a building owner or a tax professional, CPA, Enrolled Agent, etc., and you’re looking for a cost segregation specialist here in South Carolina, I’m happy to be of help. I’m based out of Greenville, SC and represent Cost Segregation Services, Inc. The company has been studying buildings for 20 years. During that time we have successfully completed more than 35,000 engineering-based cost segregation studies across all building types and classes in all 50 states. While I’m based in South Carolina, I can study any buildings anywhere in the U.S.

Here’s a short video on what we do for building owners.

Cost segregation works on all types of buildings where the owner is receiving a lease or rent payment. In other words, it can’t be your personal residence. Typically the basis or cost needs to be north of $200,000 in order for the economics to work for the owner, but we have done some studies on buildings with a basis as low as $150,000. This works on commercial buildings, retail strips, self storage facilities, hotels, apartments, single family rentals, Airbnbs, short term rentals, offices, warehouses, industrial, shopping centers etc.

Call me at 864-276-1448. I can provide a no cost, no obligation quote so you can discuss it with your tax advisor to see if doing cost segregation makes sense for you financially.

Outback Steakhouse to Replace Torn Down Ruby Tuesday in Simpsonville, SC

January 30, 2023 /
Photo: Demolition of Former Ruby Tuesday, Simpsonville, SC – John Murphy, Cost Seg Building

Last week as I was heading down Fairview Road in Simpsonville, SC to go have coffee with a local commercial broker and his client, I noticed that demolishion was taking place at the site that once was a Ruby Tuesday. It’s on a killer corner right at Grandview and Fairview Roads in Simpsonville. It’s just off I-385. I don’t know the traffic counts right there off hand but they are massive. There are a number of large strip malls right there in the area and Fairview Road is known for having a heckuva traffic problem.

According to the tax records, NIP Simpsonville LLC purchased the property 12/3/20 for $1,500,000. I just don’t recall if Ruby Tuesday was still operating then or not. I’m thinking maybe Covid killed it off and maybe they were nearing the end of their lease and let it go.

There is a fantastic Facebook Group for Simpsonville residents which may be one of the best Facebook groups I’ve ever belonged to….anyway, the group loves talking about what’s new in the city and someone posted that this building was finally coming down and that a new Outback Steakhouse was going in. It looks like the cost to build that new restaurant will be about $2 million.

I was curious as to how well Outback Steakhouses do with their restaurants and they generate some significant sales. According to the site, Statista, the average sales for an Outback Steakhouse restaurant was $3.8 million in 2021.

Chick-Fil-A Woodlawn Road Charlotte Proposes 3 Lane Wide Drive-thru to Help Traffic Back Up – Partial Asset Disposition Opportunity

January 17, 2023 /
Image: Google Street View of 1540 E Woodlawn Road, Charlotte, NC – Chick-Fil-A Restaurant

It’s a common issue many of us have seen whereever there is a Chick-Fil-A…cars backed up into the main roadway as they wait in line to place their order for food. Chick-Fil-A has really mastered the art of the drive-thru and during and after Covid, they were the first that I saw that doubled up their drive-thrus expanding capacity. McDonalds had kind of done that over the past few years but CFA had taken it to an entire new level.

Now they are looking at going 3 wide instead of 2 wide in their drive-thru lanes. This is an attempt to deal with the complaints of traffic being backed up along Woodlawn Road in Charlotte during meal time. Chick-Fil-A is proposing that they go full on drive-thru only operation and eliminate dining to only have room for 3 drive-thru lanes and keep more traffic on their property rather than spilling out onto Woodlawn. According to the article in Axios Charlotte, this has caused a conundrum for city planners and council because they want a community that is more walkable and less dependent upon the automobile. In this case, in order to possibly improve the situation of the traffic congestion, it only ends up making the business more dependent upon the automobile. That said though, I think the public has spoken regarding Chick-Fil-A and in most cases, people just can’t get enough of it and because CFA does such an awesome job with their service via the drive-thru that people continue to frequent their stores and opt to get their food that way.

Since this blog is about cost segregation, this project will be an exellent opportunity for partial asset disposition (PAD). Because part of the building will be removed, we would calculate what that value is and what the remaining basis is on the books and get that removed from the books. It’s an immediate tax deduction in the year in which the work was done and then that amount is also removed off the depreciation schedule for the building so the owner doesn’t have to worry about paying recapture tax on that property that is no longer part of the building. It’s kind of a double tax savings but it’s a use it or lose it tax benefit. A partial asset disposition must be taken in the tax year in which the work was done. If you don’t file it in that same tax year, you cannot amend your tax returns to claim the deduction.

The company that appears to own this Chick-Fil-A at 1540 E Woodlawn Road, Charlotte, NC looks to be Charter Venture LLC. I don’t know if they are considering doing a PAD or not.

The Benefits of Sale-Leasebacks for Industrial Real Estate Owners

January 16, 2023 /

Sale-leasebacks seem to be growing across different sectors of commercial real estate. We have certainly seen this happen with dental and medical practices but we are also seeing it in industrial and other commercial real estate. It frees up capital for the operating entity to go and invest and expand in the running of the business instead of having it tied up in the real estate.

Richard Blackwell, Vice President of Development, Southeast office for Agracel, Inc. published an excellent post on the value of sale-leasebacks for industrial real estate. I’m publishing his post here because this is the clearest articulation I’ve seen on what industrial owners may want to utlize a sale-leaseback strategy. This strategy does not only need to apply to industrial users. Certainly any owner-operator who is running their business out of a building they also own could look to see if executing a sale-leaseback would benefit their business. Excellent post Richard!

#saleleaseback #industrialrealestate

Lee & Associates Greenville / Spartanburg Signs 13 Deals in December 2023

January 16, 2023 /
Photo Credit: Lee & Associates Greenville / Spartanburg

A sign that business continues to keep chugging along here in the Upstate of South Carolina, Lee & Associates Greenville / Spartanburg, announced that their brokers signed 13 industrial and land deals during the month of December 2022. While business might be slowing, there is still a decent amount of activity that is continuing. Lee & Associates Greenville / Spartanburg

The Upstate of South Carolina continues to attract investment from all across the country and more and more people come to realize that the cost of living as well as land and building costs are less here than in most places across the country. The proximity to Charlotte, NC as well as Atlanta, GA are a big help. I-85 runs through Greenville and provides great transportation access to the south as well as cities further up on the east coast. The Inland Port Greer is also a massive business driver helping companies with their supply chains as it has direct access to the Port of Charleston.

IRS Audit Technique Guide for Cost Segregation – Updated 2022

January 16, 2023 /

Sometimes I will occassionally get a question from a building owner and/or investor as to whether or not cost segregation is a legitimate tax strategy. I will let them know it’s been law for well over 20 years now and in fact the IRS publishes a guide for its auditors to evaluate cost segregation. The IRS just published a new cost segregation audit technique guide. It had been many years since the last one was published. It’s 268 pages in case you’re interested in reading it :).

From the IRS document…

This Audit Techniques Guide (ATG) has been developed to assist Internal Revenue Service (Service) examiners in the review and examination of cost segregation studies. The primary goals are to provide examiners with an understanding of:


• Why cost segregation studies are performed for Federal income tax purposes;
• How cost segregation studies are prepared;
• What to look for in the review and examination of these studies; and,
• When certain issues identified in the cost segregation study need further
examination.

The ATG was originally developed by a cross-functional team of Service Engineers and Revenue Agents. It was updated by members of the DCE PN and is not intended as an official IRS pronouncement. Accordingly, it may not be cited as authority.

So if you wonder if you should hire a reputable and trusted firm for cost segregation for your building / investments, just realize the IRS has published a 268 page guide for its auditors to examine the accuracy of your cost segregation study.

If you’d like to talk to a firm with a long history of successfully completing these studies for building owners and investors, please don’t hesitate to reach out to me, John Murphy, CSSI at 864-276-1448.

California Eliminates Parking Lot Minimums for New Develpments

January 16, 2023 /
Photo Credit – John Murphy, Cost Seg Building

There is a movement afoot in the U.S. for some cities and now even states eliminating parking lot minimums when it comes to new development or redevelopment projects. California has now officially banned parking minimums.

Given the high cost of development and land, this makes sense to allow the developers to put more toward the building itself rather than allocate additional space for parking to meet an arbitary requirement by a city or county council. That said, America hasn’t given up cars yet and people still need parking. It will be interesting to see how this evolves over time.

I can imagine that some developments will scale back too much and word will get out that those developments are hard to get in and out of and may deter customers from showing up. I guess we’ll see how this goes. My guess is we won’t have a good read on this for at least 10 years.

Top Multi-Family Developers in the U.S. in 2022

January 10, 2023 /
Photo: Greystar | 85 Boston St., Everett, MA | Boston Real Estate Times

Mulit-Housing News is out with their annual list of the top development firms building multi-family housing across the U.S. in 2022. There were some massive numbers put up by the top firms in 2022.

Top 10 firms are:

  • Greystar
  • The Related Cos.
  • Trammell Crow Co. / High Street Residential
  • LMC, a Lennar Co.
  • The NRP Group
  • Mill Creek Residential
  • Crescent Communities
  • The Bainbridge Cos.
  • ZOM Living
  • JPI

Despite the constant state of negative business news in general, multi-family continues to plough ahead with consistent development. From Mulit-Housing News, “Despite rising construction costs in recent years, multifamily development has maintained a strong pace. A recent supply update from Yardi Matrix predicts deliveries will exceed 420,000 units by the end of the year and expects multifamily completions to hit north of 430,000 in 2023 and more than 450,000 in 2024.”

There has been lots of doom and gloom about real estate ever since the Fed started to raise interest rates. And it may well be warranted. I suspect these deep pocked firms will be just fine and will weather whatever choppy market we face in the coming year or two.

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