SMART INVESTMENTS
CRE TAX: Focus on TCJA/CARES Act (QIP Fix)

13101 Kathy Ln
10,540 SF

Real Estate Tax Alpha

Unlocking Capital in
Industrial Flex Assets

A deep dive into the tax implications of Tenant Improvements (TI) and Qualified Improvement Property (QIP) for the property at 13101 Kathy Ln, Cypress, TX.

Cypress, TX Industrial Flex Strategy: Cost Segregation

Acquisition Basis

$1,370,200
Purchase Price (Excludes Closing Costs)

Tenant Improvements

$421,600
Capital Injection (The Key Variable)

Projected Revenue

$170,748/yr
Based on $16.20/SF NNN Market Rent

The "Vanilla" Approach

In a standard accounting scenario, the IRS views commercial real estate as a long-term asset. Both your building and your Tenant Improvements are typically depreciated over a grueling 39 years using the Straight-Line method.

This creates a "slow trickle" of tax deductions that barely makes a dent in your substantial NNN rental income, leaving you with a high taxable income liability in the early years.

Standard Year 1 Deduction:
~$46,000
~2.5% of Total Basis

Standard Straight-Line Depreciation over 39 Years

The Accelerator: Qualified Improvement Property (QIP)

Thanks to the CARES Act (correcting the TCJA), internal improvements to non-residential buildings are no longer trapped in the 39-year cycle.

1

Interior Build-Out?

Renovation must be interior to the building.

2

Non-Residential?

Must be commercial (Office, Retail, Industrial Flex).

3

Not Structural?

Excludes elevators, escalators, and internal structural framework.

🚀

QIP Status!

15-Year Life + Bonus Depreciation Eligible

Year 1 Deduction Power

Standard vs. QIP + Cost Segregation (Assuming 60% Bonus)

Insight: By reclassifying the $421k TI as QIP and performing a Cost Segregation study on the building, we increase the Year 1 deduction by over 700%.

Deduction Stack (The Math)

Breaking down the components of the Advanced Strategy.

The "Paper Loss" Shield

Advanced depreciation doesn't change your actual cash in the bank (NOI); it changes what you report to the IRS.

With $170k in rental income, the massive Year 1 deduction can drive your Taxable Net Income negative, effectively eliminating federal income tax on this cash flow for the first few years.

0%
Effective Tax Rate
on Year 1 Cash Flow

Financial Summary: 13101 Kathy Ln

Metric Standard Strategy Advanced Strategy (QIP)
Total Eligible Basis $1,517,760 $1,517,760
Year 1 Deduction $45,946 $388,420
Taxable Income (Yr 1) $116,264 ($226,210) LOSS
Tax Savings (@35% Rate) - ~$119,866 in Deferred Tax