How Cost Segregation Can Unlock Hidden Tax Savings in Commercial Real Estate

Brian Haney (00:00)
We had just finished with ⁓ had an office building and we did a cost segregation study, an improvement study, so and ⁓ and also a pad study, partial asset disposition study. So when when you throw items away into the dumpster, we can put dollars on those. ⁓ because like if you tore the roof off and you only own the building one year, well the roof is depreciated over thirty-nine years, so the roof has thirty-eight thirty-ninths of value.

⁓ that we can put on that for you and you can expense it off your tax return as you throw those things away. So that person had spent six thousand dollars on the combined studies and has an income tax benefit with the IRS of five hundred and eighty eight thousand five hundred and fifteen dollars.

Scott Bursey (02:13)
Welcome back to the Real Estate Pros podcast powered by Investor Fuel. I’m your host, Scott Bursey And today we’re delighted to be joined by Brian Haney from Tangible Property Tax Methods. Brian is part of the leadership team helping commercial building owners navigate the complexities of IRS tax benefits. For all you pros listening, expect a conversation about turning tax burdens into high value assets and how to maximize your portfolio’s efficiency.

Brian, welcome to the show.

Brian Haney (02:44)
thank you so much for having me.

Scott Bursey (02:46)
It is awesome having you here and to help our listeners get up to speed, please give us the ninety second highlight reel of how your career ignited and where you’re pouring your fuel now.

Brian Haney (02:56)
Okay, yeah. My ⁓ my background was ⁓ I started out af after college buying older homes and did remodeling to I had a background in construction and remodeling and ⁓ was buying single family homes, starter homes. lease leased those out and as ⁓ time time went on, then I found another ⁓ avenue which was ⁓ new construction. ⁓ so I built a couple homes and ⁓

That started working well. So I s I sold the ⁓ rental properties. We had eight rental properties, and from there then built ⁓ five hundred and twenty-three houses over twenty-four years. the market came to an end in twenty ten, as we all know. And so then I moved into ⁓ commercial real estate, selling and leasing different types of commercial real estate. So some was ⁓ you know retail, ⁓ light industrial.

as as well as ⁓ office buildings. And after doing that in my seventh year, then I came across what is called cost segregation. It’s an IRS approved application that the IRS allows investors to implement. And so I started ⁓ doing that where people can get forty to eighty thousand per one million of building costs back from the IRS as an income tax benefit.

Scott Bursey (04:18)
Well, thank you for sharing that journey. It’s a unique one and it’s a it’s a powerful journey. You know, what really caught my attention about you, Brian, was the way you’ve been able to help commercial building owners unlock significant income tax benefits through specialized tax methods for over a decade. With that in mind, how has shifting the perspective from taxes as a burden to

Taxes as an asset transformed the way your clients manage their commercial portfolios.

Brian Haney (05:36)
Yeah, well I think I think the biggest thing is the different applications that the IRS created. cost segregation allows you to take the building components that they’ve determined the lifespan on, which allows you to accelerate depreciation and then that accelerated depreciation turns into what we call an income tax benefit. So as I said, people then would have like a so to speak credit with the IRS. So ⁓ one of the clients that ⁓

We had just finished with ⁓ had an office building and we did a cost segregation study, an improvement study, so and ⁓ and also a ⁓ pad study, partial asset disposition study. So when when you throw items away into the dumpster, we can put dollars on those. ⁓ because like if you tore the roof off and you only own the building one year, well the roof is depreciated over thirty-nine years, so the roof has thirty-eight thirty-ninths of value.

⁓ that we can put on that for you and you can expense it off your tax return as you throw those things away. So that person had spent six thousand dollars on the combined studies and has an income tax benefit with the IRS of five hundred and eighty eight thousand five hundred and fifteen dollars.

Scott Bursey (06:46)
What do you see as the biggest internal strength for your specific tax methodology for commercial owners?

Brian Haney (06:52)
Well I think I think the you know one of the strengths is is ⁓ being able to to look at first of all, you know, what they look at is what they’re gonna do with the building and then really who who they’re trying to put into the building. And and then ⁓ allowing us to assess, you know, what sort of ⁓ benefits they can get through the IRS programs that come from the IRS. ⁓ and then also ⁓ you know, and and how long they’re gonna

hold on to those buildings. ’cause you know, ’cause obviously some some people are ⁓ just f you know flipping buildings. ⁓ and so ⁓ you know, doing cost segregation and s in some ways helps that. It it’s a bigger help to people that are gonna hold onto buildings for, you know, a period of time, five years, eight years, ten years or something like that or more.

Scott Bursey (07:38)
How do you scale those strengths as the firm continues to grow, Brian?

Brian Haney (07:43)
the the the comp well the company the the company also grows through ⁓ doing what the IRS called tangible property regulation studies. So that that’s where we have gone through people’s depreciation schedules over a period of time. And and so I know we had somebody who was ⁓ selling ⁓ three hundred McDonald’s stores back to corporate McDonald’s.

And of course someone would purchase all those stores over time. ⁓ we went through all the depreciation ⁓ schedules on those and found twenty eight million dollars that he could expense that was unfortunately not done correctly.

Scott Bursey (08:22)
We’re interested to hear your thoughts on what’s one common misunderstanding owners have that often weakens their tax position before they even meet you.

Brian Haney (08:33)
I think well the cost segregation came from a lawsuit that was done by the Hospital Corporation of America on the premise that we have to depreciate our buildings over thirty nine years, but the components don’t last that long. So obviously if you owned a hotel, carpet isn’t gonna be thirty nine years in your hotel. I’m sure at s five, seven, eight years you’re swapping out carpet due to wear and tear slash ⁓ colors have changed. It’s and so

You know, with that then the IRS spent ten years how to properly do a cost

segregation study, you know, with an eng engineering company and and it’s our company has you know engineers that work and also strong CPAs in the function of of both to be able to extract the most that we can for clients and still follow the guidelines at the IRS for, you know, how to do a proper study.

Scott Bursey (09:23)
Glad you pointed that out and wondering about the current market, where do you see the biggest untapped opportunity for commercial owners to claim benefits they might be missing right now?

Brian Haney (09:36)
⁓ well I th I I think the people that tend to own larger properties, which would also be larger larger dollar amounts, t tend to have more knowledge about cost segregation ’cause they they would have different CPAs than if I owned four Airbnbs.

Scott Bursey (10:27)
Looking at the current landscape, what IRS changes or regulatory shifts are you most focused on right now in regards to your clients?

Brian Haney (10:36)
that’s that’s a good question. So the the sh the shifting I think tends to be ⁓ mo more just gearing in from the standpoint of how many people just don’t know about cost segregation, which has probably been s been out there for a while. you know, some of the CPAs depending on who their clients are made up of, may not be aware of it.

And it tends to be when people aren’t aware aware of things then it there’s like a fear factor I would say. but like I said, the IRS spent ten years how how to do it, so we just we follow all those guidelines and it’s ⁓ it’s it’s an excellent tool for people to use ⁓ because it just it helps you from your cash flow in so many different ways.

Scott Bursey (11:23)
Okay. Digging a bit deeper, Brian, if you were advising a commercial portfolio owner today, where is the first place that you would start ⁓ to find, let’s say, hidden money?

Brian Haney (11:35)
⁓

Well I think I think in s in in s in some ways ⁓ hid money is is somewhat found in ⁓ you know besides doing cost segregation just in you know over time people have to make improvements to the building. ⁓ there’s there’s wear and tear on the building. there’s also the benefit that when you do a cost segregation study, we list the name of the components

in two columns. The left column is is the name of the component, and the right column is the dollars of total replacement costs. So let’s say Windows and let’s say you have

three story building and you use as if you spend less than ⁓ thirty three percent of the total replacement costs you can expense them so you would certainly just do the first floor one year, the second floor the next year, the third after that, as opposed to doing in it doing them all at once, and then they would just start their life over again. So there’s another way that you can expense those repairs

Scott Bursey (12:38)
Brian, what’s the first step they should take to see if they qualify for that?

Brian Haney (12:44)
well it well certainly an easy step is just for us to run a an analysis forum. It doesn’t cost them anything. we certainly have ⁓ information we can send you a ahead of time explaining how it works, the steps we go through. and and like I said, we ⁓ the analysis doesn’t cost anything for you to find out. ⁓ the for IRS guidelines, it needs to be done by engineers.

Scott Bursey (13:48)
Brian, what’s the first step step they should take to ⁓ to see if they qualify for that?

Brian Haney (13:55)
Yeah, I think well I think the the easiest step is is you know is ⁓ contact me and if you’re not that familiar with it, I certainly would explain ⁓ you know, the IRS in regards to what they’ve created for you, ⁓ what benefits there is in using it. And then if you’d like to find out what you would receive as an income tax benefit, then there’s just a simple questionnaire I fill out and it’s your

Name, address of property, type of property, square foot, what month and year did you purchase it? what was the purchase price? And then email it to the home office and within a day or two we have a proposal for you. And then I go over the proposal with you, and then it’s just ⁓ you know, whether you want to go move forward with that, pay X dollars to get X dollars ⁓ as an income tax benefit back from the IRS.

Scott Bursey (14:43)
That is some sound advice. And, you know, regarding the industry pulse, what does your professional network look like right now, Brian?

Brian Haney (14:53)
professional ⁓ network is well it’s really made up of three th three things. It’s it’s one people that ⁓ refer me to other to building owners or possibly CPAs, people that have something to do with ⁓ you know, commercial real estate. then the that fuels it and then also the CPAs that I’ve worked with over time.

⁓ I s I stay in touch with them, you know, here or there they obviously pick up ⁓ new clients or a client has purchased their fifth building, ⁓ as as well as just the ⁓ you know clients themselves. So I try and ⁓ you know keep them abreast if there’s anything that’s ⁓ cu coming out that that that’s new besides you know cost segregation, like I said previously, there’s there’s also ⁓ you know different different studies that you can do that that help reduce your cost.

your cost and improve your ⁓ financial situation where where you’re at with your with your property.

Scott Bursey (15:55)
It’s all about who you’re moving with. Thank you for highlighting that. And Brian, you have given our listeners just a tremendous amount of great actionable advice today. But is there any other words of wisdom, any additional advice that you can leave with our pros?

Brian Haney (16:11)
⁓ well, you know, I would say ⁓ if you were comparing buildings, I would suggest to f feel free to reach out to me because we can run analysis for you ahead of time and you might find ⁓ hey, building B is gonna be a better choice to purchase than A and C for the reasons of ⁓ in theory paying l paying less income tax, implementing cost segregation and and even

⁓ you know, maybe doing an improvement study or pads pad study. as well as then your your decision is going to be about what what’s my what’s my net income on the property and and where the property sits. Well is the is the market moving away from that area is or is it grabbing to that area, which is really that’s something you need to decide on your own.

Scott Bursey (16:59)
Brian, for those of our listeners that want to keep this conversation moving, stay in your lane, or collaborate with you, what is the best way for them to reach you?

Brian Haney (17:06)
⁓ best best way to reach me is you can just ⁓ email me. It’s ⁓ simple email it’s bcostseg, C-O-S-T-S-E-G at @gmail.com or feel free to reach out by phone (630) 277-7521 or connect with me on LinkedIn.

Scott Bursey (17:26)
Brian, thank you for joining us today on the Real Estate Pros podcast.

Brian Haney (17:29)
Well, thank you so much for having me, Scott. I appreciate it.

Scott Bursey (17:32)
It’s been an absolute pleasure. And to our listeners, we appreciate you. If you receive value from today’s episode, please subscribe. We’ll be filling your tanks with a lineup of elite guests just like Brian Haney, who are accelerating and setting the pace for the rest of the industry. Until next time, keep your standards high and your vision clear. We’ll see you in the next episode, everyone.