How Cost Segregation Can Unlock Hidden Tax Savings in Commercial Real Estate
Show summary
In this episode, Brian Haney from Tangible Property Tax Methods shares insights on how commercial property owners can unlock significant tax benefits through cost segregation and other IRS-approved strategies. Discover how to turn tax burdens into assets and maximize your real estate investments.
Key takeaways
- Cost segregation can return roughly $40,000 to $80,000 per $1 million of building cost as an income tax benefit, by accelerating depreciation on building components instead of depreciating the whole structure over 39 years.
- A combined cost segregation, improvement, and partial asset disposition (PAD) study cost one client $6,000 and produced an income tax benefit of $588,515.
- PAD studies let owners expense the remaining depreciable value of components they remove, such as a roof torn off after one year of a 39-year depreciation schedule, capturing 38/39ths of its value.
- A tangible property regulation review of past depreciation schedules found $28 million in expensable costs that had not been handled correctly for a client who sold 300 McDonald's stores back to corporate.
- Cost segregation benefits owners holding properties long-term (roughly 5-10+ years) more than those flipping buildings quickly.
- Owners can expense building components like windows or flooring section by section (e.g., one floor per year) if each portion spent is under 33% of total replacement cost, avoiding resetting the depreciation clock by doing it all at once.
- The initial analysis to estimate potential tax benefit is free; it requires property name, address, type, square footage, purchase month/year, and purchase price, and a proposal is typically returned within a day or two.
In this episode
- 02:13Intro: Brian Haney and Tangible Property Tax Methods
- 02:56Brian's background: from house building to commercial brokerage to cost segregation
- 05:36Turning taxes into assets: the office building case study ($588,515 benefit)
- 06:52Strengths of the methodology: assessing building use and hold period
- 07:43Scaling through tangible property regulation studies: the McDonald's example ($28M found)
- 08:33Where cost segregation came from: the Hospital Corporation of America lawsuit
- 09:36Biggest untapped opportunity: larger property owners vs. small owners like Airbnb investors
- 11:23Finding hidden money: partial expensing of building components (windows, floors)
- 12:44How to qualify: the free analysis and questionnaire process
- 16:11Final advice: comparing properties before purchase using cost segregation analysis
About Brian Haney
Brian Haney is with Tangible Property Tax Methods, helping commercial building owners access IRS-approved tax benefits like cost segregation. He started after college buying and remodeling older single-family starter homes, then moved into new home construction, building 523 houses over 24 years until the market downturn in 2010. He then moved into commercial real estate sales and leasing (retail, light industrial, office), and in his seventh year there discovered cost segregation, which he has now worked in for over a decade.
Listen to the audio
“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.”
Brian Haney
“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.”
Brian Haney
“The IRS spent ten years how to properly do a cost segregation study, with an engineering company... to extract the most that we can for clients and still follow the guidelines at the IRS.”
Brian Haney
Questions answered in this episode
What is cost segregation and where did it come from?
Cost segregation is an IRS-approved application that lets investors break a building into components with different depreciation lifespans instead of depreciating the whole structure over 39 years. Brian Haney explains it originated from a lawsuit by the Hospital Corporation of America, which argued that building components like carpet don't actually last 39 years. The IRS then spent ten years developing guidelines for how to properly conduct a cost segregation study using engineers.
How much can a commercial property owner actually save using cost segregation?
Brian Haney says investors can typically get back $40,000 to $80,000 per $1 million of building cost as an income tax benefit. In one case he described, a client spent $6,000 on combined cost segregation, improvement, and partial asset disposition (PAD) studies and received an income tax benefit of $588,515.
What is a partial asset disposition (PAD) study?
A PAD study lets owners put a dollar value on building components they remove or throw away, such as a roof, and expense the remaining depreciable value. For example, if a roof is depreciated over 39 years but is torn off after one year of ownership, the owner can expense 38/39ths of its value instead of losing that deduction.
Who benefits most from cost segregation studies?
Brian Haney notes that cost segregation benefits owners planning to hold buildings for five, eight, ten years or more rather than those simply flipping properties. He also says owners of larger properties with bigger dollar amounts tend to already have CPAs aware of cost segregation, compared to someone who owns a few Airbnbs.
How do you find out if your property qualifies and what does it cost to check?
According to Haney, the initial analysis is free. He has clients fill out a simple questionnaire with name, property address, property type, square footage, purchase month/year, and purchase price, then email it to his office. Within a day or two his team returns a proposal showing the cost of the study versus the projected income tax benefit.
Can cost segregation help with repairs and improvements, not just the initial purchase?
Yes. Haney explains that when his team completes a cost segregation study, they list each building component with its replacement cost in two columns. If an owner spends less than 33% of the total replacement cost on a component (like windows), they can expense those repairs, for example doing one floor of a multi-story building's windows per year rather than all at once and resetting the depreciation clock.
Resources and links
- Brian Haney’s Email Address: bcostseg@gmail.com
- Brian Haney’s Phone Number: (630) 277-7521
- Brian Haney on LinkedIn
Full transcript
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.
