Hello, once again David Moore with Jonathan Frizzell.
We're doing Ask the Experts on cost segregation
today, so a lot of you may or may not know
what that is, and Jonathan's going to ... He's
been taking the mystery out of it, but got
a couple more questions I'd like to ask you,
and the first one is ... We've talked a little
bit about it, how you got started, who you're
with, all that good stuff ... what kind of
assets it can be applied to, but we really
haven't talked about when this should be done.
You got a property ... If I came to you and
said, "Hey, Jonathan, I've had this property
for the last 20 years.
Can you deal with it, or if I'm closing something
next week, can you deal with it?"
Or, "I sold it.
Can you deal with it?"
How can what you do be applied to a person's
portfolio of property?
Good question, David.
We'd actually like to take a look at both
of 'em.
You know whether ... certainly upon acquisition
after closing.
We can also ... For the banker and the broker,
we can actually run the analysis on an estimated
closing price, closing date.
And then what to bill the land and cost basis,
we'd be happy to run that for 'em.
But certainly after closing, but then even
15, 20 years of service, and we still want
to look at it, it's more than likely there's
going to be improvements after that.
So my record is 54 and a half of the depreciation.
54.5% was gone on this old warehouse up in
Seattle, and there is still value for the
client.
Sometimes people think ... There's an unsafe
belief out there that after five, seven years
of service, there's little or no benefit in
cost seg, and I know it certainty, that's
simply not true.
Nice.
Thank you.
Not true.
Has to be taken care of.
That's right.
I don't know.
You look at this stuff, and so often you feel
like you missed an opportunity for something,
and this is totally off topic, but we talking
about it ... geo-fencing, all that stuff for
digital marketing these days.
And I didn't realize ... We had somebody talking
about it the other day, and I didn't realize
You can say, "Oh, you want to know
who was at the NAR convention two years ago?"
they can do it.
It's just really amazing what's possible there.
So it's always nice ... You don't have to
feel like you missed your opportunity if you
haven't done it, and you've had the building
for a while.
You still have the opportunity to go back.
Jonathan can fix it for you.
That's right, and IRS calls that a look-back
study.
I happen to call it a catch-up study.
And then what happens is, you can go ahead
and catch up on that depreciation that you
would have gotten the first year of service,
and there's a thing called a 481(a) adjustment.
And we'd be happy to calculate that for the
tax professional, make it a turnkey application
for him.
As far as when you're dealing with somebody
... Obviously we've got people that don't
have tax professionals, and you've got companies
that do software for these people that own
these income properties, or things that are
supposed to be income property, so how do
you address ... If somebody's got a tax professional,
obviously you're going to engage them and
at least make sure that everybody's on the
same page probably, but when somebody doesn't
have somebody that's doing tax work professionally
for them, if they just want to take it on
themselves, is there ... How do you feel about
that?
Are there things that you say, "Hey, you can't
really afford not dealing with this; we've
gotta really be careful in this or that or
..." What's ... There's always a sort of a
down ... What's the downside of a cost seg?
Well, the downside would be is if you're selling
it tomorrow.
There'd be no value.
You have recapture and capital gains issues.
You just got more gain.
Yeah, and so you definitely want to ... You
definitely want to hold it until ...
pretty aggressive.
They say you have to hold it for at least
two or three years.
I like to say more conservatively four or
five years.
I've got one real estate professional in LA,
and he cost seg's and 1031s, and he comes to
me, and he's exchanging and cost segging in
1031 every two years.
Wow.
And so ... Well, it's multi-family, triple net, retail, you name it.
And he comes to me for all that work.
It's just a matter of ... It depends on the
individual.
What our commitment though, at the cost seg
group at CPRE is that to make this as turnkey
as we can for the tax professional and the
owner, the burden and the fiduciary responsibility
is really on us, not only on the analysis,
no cost analysis, but
even after engagement, to go ahead and get
exactly what we need, and get that data, and
then go ahead and do the on-site review, and
then get it into engineering, so we can deliver
it.
The biggest unsafe beliefs about cost segregation-
Well, this is what I was just going to ask
you.
What are the biggest, most common mis-beliefs
or fallacies of the whole process?
They think it's a lot ... Between the controller,
the CFR, the controller or the tax professional,
CPA or enrolled agent, oftentimes, not all,
but a lot of them will think that it seems
like it's a lot of work.
And if you get a high quality cost seg professional,
there should be no work.
Well, I was going to say, it's work for you.
It shouldn't be for the taxpayer.
Right.
It really shouldn't be.
All we need to do, all we need for a no-cost,
no-obligation analysis for an estimate of
benefits proposal, is simply the most current
federal tax depreciation schedule and a physical
address, and then I'll do the rest.
And then I can run it.
And then I'll get up in the sky and look at
the building, and then I'll make my suggestions
and engineers will get an estimate of benefits
and proposal back.
But even after engagement, it's important
upon execution, that you make a commitment
to the owner and the tax professional, what
the responsibility is, which is pretty minimal
on the documentation that's needed, and just
go ahead and get that to us in a timely fashion,
and then we'll deliver it within four weeks,
in regard of whether it's
a big one or...
So it's about four week-
About four weeks of client engagement, yeah.
Sometimes a little longer.
My record back in ... years ago, was actually
in three or four days.
I'd rather not do that
That's a tough go right there.
It was four days, I think, might have been
five days.
So why was that?
What was the reason?
Well, depreciation, David ... Depreciation
expense and taxes are not the most sexiest
components of commercial real estate.
Oh, come on!
And
So you're probably like me, Jonathan.
You go to a party, somebody asks you what
you do, and it's like, "Um, hey Paul, how
are you doing?"
Yeah, pretty much.
Well look, there's a lot of last minute clients,
frankly.
I always wonder in the world is it the tax
professional or is it the client?
And I'm going to have to side on caution with
the tax professional, that oftentimes the
client is not getting the documentation to
the CPA to even give us a call beforehand.
But I did a gas station.
I did a gas station last minute.
I got the engagement on the 27th, 28th of
August, and that was a 15th of September deadline,
and we still got it done.
Yeah.
I don't want you to divulge where you get
your business, where you're mining it, but
as far as sources, is it typically the principal
has heard something?
If I look at my IRA business, it's because
somebody has heard something somewhere, and
all of a sudden they just dig and dig and
dig and try to find a source for information
on it.
Is it that or is it brokerage community, tax
community, investment community?
I mean,-
Yeah, that's a good question.
... is it just all over??
I mean ...
Well, everybody in the commercial real estate,
they focus on the principal, the owner, and
then the gate keeper, the consigliere, the
CPA, the tax professional.
And part of my success which I feel very humbled
by, with hard work, is that really, any provider
of the commercial property owner ... I literally
compliment books of property and
guys and dolls, brokers,
lenders, 1031 experts, lenders, bankers, and
then certainly tax professionals, enrolled
agents, CPAs, but CFOs, controllers, comptrollers,
and of course, owners all like ...
This includes owner/users as well.
Lot of owner/users are overlooked in this
cost seg, and I can certainly make it affordable
for them too as well.
You don't need to have a five or a 10 million
dollar basis.
And also what I've cut my teeth with a lot
of families, is I've cleaned up other cost
seg work, so that the question is, "Can do
a cost seg study on a cost seg study?"
And oftentimes, you can.
Interesting.
Yeah.
A lot of people don't know that.
Interesting.
Well, once again David Moore, here with Jonathan
Frizzell with the Ask the Experts series,
and we're talking cost seg today.
We'll be right back.
Thank you.
Thanks, David.
