2 — June 2026 — M id A tlantic Real Estate Journal
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M id A tlantic Real Estate Journal
M id A tlantic R eal E state J ournal Publisher, Conference Producer ..............Linda Christman VP, Conference Producer .............................Lea Christman Editor/Graphic Artist ......................................Karen Vachon Contributing Columnists ....Carlo L. Batts, MAI, Rittenhouse Appraisals and The Reduxx Group; Chandler Echols, Cost Recovery Solutions; Jay L. White, MAI, CRE, Apex Realty Advisory Mid Atlantic R eal E state J ournal ~ Published Monthly Periodicals postage paid at Hingham, Massachusetts and additional mailing offices Postmaster send address change to: Mid Atlantic Real Estate Journal 117 HMS Halsted Dr., Hingham, MA 02043 USPS #22-358 | Vol. 38, Issue 6 Subscription rates: 1 year $99.00, 2 years $148.50, 3 years $247.50 & $4.00 single issue - plus postage
Navigating CRE Inheritance Chandler Echols Cost Recovery Solutions
W hen commercial investment prop- erty is transferred through an estate, one of the most significant tax advan- tages available to heirs is the “basis step-up.” Under- standing how this provision maximizes your immediate tax savings and how coupling it with an engineering-based cost segregation study can sig- nificantly improve your long- term financial performance is critical if you are inheriting income-producing real estate. What is a “Basis Step-up”? To understand the value of a basis step-up, it helps to look at how the IRS balances two critical tax factors for property owners: the burden of capital gains taxes on appreciation, and the benefit of annual depreciation deductions for building wear and tear. Normally, tax depreciation is strictly locked into your original purchase price, mean- ing that even if the market booms, your annual write-offs
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Example: If a property pur- chased decades ago for $1 million has appreciated to $3 million at inheritance, the $2 million in historical capital gains is wiped away. The heirs can immediately leverage the full $3 million valuation to generate larger annual tax benefits and boost after-tax cash flow. Basis Step-Up & Cost Segregation A cost segregation study allows property owners to break down a building into its individual components. Instead of depreciating the en- tire structure over a standard 27.5- or 39-year timeline, an engineering-based study iden- tifies elements—such as land improvements, decorative finishes, cabinetry, specialty continued on page 10
cannot grow, and those de- ductions eventually run out. Additionally, if you sell, you owe capital gains taxes on any appreciation in property value, plus tax recapture on the depreciation you claimed over the years. An estate transfer shifts this tax framework: • Capital Gains Erasure: The IRS discards the original owner’s historical purchase price, allowing for a basis step-up to the property’s fair market value as of the date of death. This structural reset typically frees any inher- ited appreciation from capital gains tax liability. • Depreciation Reset: The property’s previous deprecia- tion history is wiped clean. Heirs can claim new deductions using the updated valuation.
Firmly Rooted in the Law and in the Community We are well grounded in every facet of real estate law, from acquisition to construction. We are committed to serving the needs of our clients and our communities.
Contact: NEIL A. STEIN • nstein@kaplaw.com 910 Harvest Drive, Blue Bell, PA 19422-0765 • 610-941-2469 • kaplaw.com Other Offices: • Cherry Hill, NJ 856-675-1550 • Philadelphia, PA 215-567-3120 Kaplin Stewart Attorneys at Law
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