Tax Benefits of Cost Segregation With Yonah Weiss

00:05 welcome today’s episode of peak 00:07 market watch we speak with market 00:09 leaders in commercial real estate and 00:10 related services who have a close pulse 00:13 on the current market environment 00:15 my name is anton mattli co-founder and 00:17 ceo of peak financing and my co-host 00:19 today is ben suttles 00:21 one of my fellow board members and 00:22 principal with disrupt equity 00:25 that firm actively invests in and 00:28 manages multi-family properties 00:31 we are honored uh to welcome yonah weiss 00:34 business director with madison specs one 00:36 of the leading 00:37 car segregation firms in the country uh 00:40 welcome yonah it’s a pleasure to have 00:42 you with us today 00:44 thank you it’s a pleasure to be joining 00:45 you guys yeah so why don’t you give 00:47 us a brief background about you as well 00:50 as 00:50 madison specs sure absolutely as you see 00:53 my background is a brick wall 00:57 that’s my brief background for the day 00:59 but um 01:01 no but actually you know i i was a 01:03 teacher for many years 01:04 uh part-time stand-up comedian not 01:06 really just uh 01:07 just on podcast but what i what i love 01:09 to do is teach 01:10 that’s been my passion i got involved in 01:12 real estate about six years ago or 01:14 five six years ago and um dabbled around 01:17 in different things 01:18 i did a little commercial financing for 01:20 a little bit some 01:21 mortgage brokering and hard money loans 01:23 and then did some fixing flips trying to 01:24 get my 01:25 feet wet learning apprenticing from some 01:27 friends and and people that i knew who 01:28 had been in real estate for a long time 01:30 and a few years back but three years ago 01:32 came across this company madison madison 01:34 title you guys know mass commercial real 01:36 estate is a great company 01:37 amazing people and they had a position 01:40 that they were looking in this 01:41 conservation companies like 01:43 found very intriguing the taxes was 01:45 never really my thing 01:46 but uh i didn’t have a background as an 01:49 accountant but they have a whole team of 01:50 cpas 01:51 they’ve been doing this for years and 01:54 they need someone in the business 01:55 development 01:56 part of things and really what it ended 01:57 up being i found was really just 01:59 like teaching like that that was my 02:01 background so yes it has a sales 02:02 component as business development 02:04 component to it 02:04 but essentially since it’s like this 02:06 topic cost segregation that’s like 02:09 clouded in this really like mystique for 02:11 people that don’t know what i mean you 02:12 guys are laughing because you know what 02:14 it is you use it 02:15 all right it’s it’s great but for a lot 02:17 of people it’s like 02:18 what it’s basically a dichotomy right 02:20 for you two 02:21 and this was what my first impression 02:23 was when i came into the space was that 02:25 i asked everyone i knew like what do you 02:27 think about conservation so there’s two 02:28 responses basically 02:30 one was like yeah it’s awesome right 02:32 that’s the best thing ever we use it on 02:34 all our properties 02:35 and then the other response i got was 02:37 i’ve never heard of that 02:38 what’s conservation what is that and 02:39 there was no middle ground there was 02:40 nothing 02:41 so it was like i and the majority was 02:43 the latter were those people who were 02:46 told yeah just never heard of it and so 02:48 i found it was just a challenge of 02:50 just explaining it and teaching it so i 02:52 took upon that challenge to just 02:54 simplify it as best as i could been on a 02:57 bunch of podcasts um 02:59 i can’t even count anymore how many and 03:01 that’s what i enjoy doing so i just 03:03 continue 03:04 what i love doing helping people all 03:05 right so we do know a little bit about 03:07 it right but for our listeners 03:09 right you know i mean you can you break 03:11 it down maybe in the most simplistic 03:13 ways 03:14 just because i mean i think it is what 03:16 you really hit on the head is it’s a 03:17 very powerful 03:18 tool but you have to use it correctly 03:19 you need to know what it can do and what 03:21 it can’t do 03:22 and i think for our listeners can you 03:24 just kind of break it down for us and 03:25 you know what what is cost segregation 03:28 absolutely and you hit the nail on the 03:29 head there also it is there are times 03:31 when it is appropriate when it’s not and 03:33 so let’s just break it down 03:34 it’s a very advanced form of 03:36 depreciation 03:37 that that’s all it is okay so 03:39 depreciation appreciation 03:40 exactly what’s the appreciation what is 03:42 that it sounds like a negative thing 03:44 right okay my property is going down 03:46 in value it’s really not that at all 03:47 it’s it’s not the opposite of 03:49 appreciation actually property is going 03:51 up in value but 03:52 you get a tax deduction from the irs 03:56 called depreciation and it’s based on 03:58 the concept that things go down in value 03:59 but 04:00 essentially it’s it’s not intrinsic to 04:02 your property’s value 04:04 because it’s based on when you buy a 04:06 property you literally get to write off 04:08 that entire value 04:09 of the property minus the land so a 04:11 little bit goes to land and the rest of 04:13 the property you get to take as an 04:14 income tax write-off okay 04:16 that’s called depreciation but it’s over 04:18 a long period of time so it’s over 27 04:20 and a half year period you take a little 04:21 bit every year but essentially 04:22 you’re just basically taking a tax 04:24 write-off against as if the property 04:25 were going down in value 04:27 so now i can write off a certain amount 04:28 to say well it’s going down in value 04:30 so i can instead of losing it i get to 04:33 be able to recover 04:34 those losses so to speak and that’s the 04:36 concept 04:37 of depreciation which is a great thing 04:39 basically allows you to pay 04:41 less taxes on any income you make from 04:43 real estate 04:44 very simply put so cost segregation now 04:46 understanding what depreciation is 04:49 is just like i said an advanced form of 04:50 that breaking down the property into 04:53 different components 04:54 that certain things in there actually 04:56 depreciate at a faster rate 04:58 and you can even get bigger tax 05:00 deductions 05:01 in the earlier years so that you can pay 05:04 even less taxes 05:05 up front can you give us an example can 05:08 you give us an example of some of the 05:09 things that a cost segregation study 05:11 takes into consideration right and 05:13 and some of those things that might be 05:14 in that bucket of hey this is going to 05:16 be more 05:17 on an accelerated basis versus something 05:19 that’s going to depreciate on a longer 05:21 term basis 05:22 absolutely so essentially what you have 05:24 is the structure the main structural 05:25 components of the building that really 05:27 depreciate on that 27.5 year schedule 05:29 and we’re breaking out different 05:31 components like personal property 05:33 including you know things like furniture 05:35 or even cabinets carpeting things even 05:37 if they’re attached but they’re not 05:39 integral to the structure of the 05:40 property so 05:42 like i said furniture appliances 05:44 equipment fixtures 05:45 window treatments even stuff like mill 05:48 work or certain types of wiring and 05:50 you know electric and flighting all that 05:53 stuff 05:53 it’s inside your building it all has 05:55 value to it we’re able to 05:57 assign through an engineering process a 05:59 sign of value 06:01 or really understand what the value of 06:02 each of those components are 06:04 and then take that tax deduction over a 06:06 five-year period 06:08 and that’s called accelerating that 06:09 depreciation taking a big chunk of that 06:11 earlier on yeah a great explanation here 06:15 right so for 06:16 maybe for people who have that vo 06:19 depreciation 06:20 is negative right i think it’s it’s 06:22 important to understand right that you 06:24 have 06:25 different type of accounting right so 06:27 you have 06:28 your corporate accounting gap accounting 06:31 whatever 06:31 whatever the mode is and then you have 06:34 tax accounting and what you are really 06:36 doing 06:37 with your services is take the maximum 06:40 advantage of the tax code 06:41 right exactly you hear about all the 06:44 time right one of the great advantages 06:46 of real estate investing is those tax 06:48 benefits that come along with it right 06:50 what is that i mean essentially the 06:52 biggest thing i mean ben you can 06:53 speak to this if this is accurate or not 06:55 is cost segregation like it’s the 06:57 depreciation like that’s what the 06:59 biggest 06:59 tax benefit is at least in the 07:01 acquisition 07:03 stage obviously there’s 1031 exchanges 07:05 there’s different write-offs you can use 07:07 business write-offs etc 07:08 on mortgage expense deductions but 07:11 that’s appreciation conservation is a 07:12 huge 07:13 huge part of it so so okay so people 07:16 talk about you know it’s it’s a loss 07:17 right so it’s a paper loss 07:20 you know that goes on to your tax return 07:21 that will offset 07:23 you know real profits too right you know 07:26 and what you’re saying is that you’re 07:28 essentially kind of condensing down 07:30 instead of taking 27 and a half years to 07:31 depreciate all this stuff and 07:33 take all those losses you’re trying to 07:35 say hey you know the first five years 07:37 i’m going to take majority of those 07:39 things 07:39 and i’m going to shove them into the tax 07:41 returns for the first five years and 07:43 what we’ve seen 07:44 too and really this is dependent on when 07:45 you do your cost segregation study right 07:47 we typically try to do it 07:48 right when we take over the property 07:50 right that’s probably maybe you can kind 07:51 of give some tips to 07:52 some of our listeners that own 07:54 properties as well but sure you know 07:56 that year one 07:56 is huge right and then it’s gonna start 07:58 kind of going it’s gonna go down from 08:00 there 08:00 right because you’ve already taken a ton 08:02 of that depreciation 08:03 you know but the one thing that i wanted 08:05 to talk about because there is 08:07 there’s there’s there’s strategies 08:10 involved in everything that we do 08:12 and people need to realize when to do 08:14 cost segregation and when not to 08:16 so maybe can you kind of talk us through 08:18 because people are gonna be like oh i’ve 08:20 got a commercial property but 08:21 you know it might not be the best fit 08:23 for cost segregation 08:25 exactly so can you kind of talk to us 08:26 about kind of the the times when you 08:28 might not want to do it or you want to 08:30 at least think about doing it 08:32 sure absolutely and i love that you 08:33 called it you know a strategy and you 08:35 really do have to it is that’s what it 08:36 is it’s a strategy it is not necessarily 08:38 for every situation 08:39 and for every and you do have to combine 08:41 some other strategies on the exit 08:43 sometimes in order to really maximize 08:45 the benefits so 08:46 my general rule of thumb is and i’ll get 08:48 into the reasoning for this 08:50 but is any property that is purchased 08:54 for over a half a million dollars so 08:56 this is going to exclude a lot of 08:57 smaller properties 08:58 first of all and you’re planning on 09:00 holding the property for at least two 09:02 years 09:03 so there’s really two components to this 09:05 the first one is obviously has to be a 09:07 certain amount because as you said when 09:08 we’re able to front load a certain 09:10 percentage 09:11 of that depreciation to those earlier 09:13 years 09:14 then you know the bigger or the more 09:16 expensive the property is the more of 09:18 those tax deductions proportionately 09:20 are you going to be able to take up 09:21 fronts so the smaller less lesser the 09:23 value 09:24 the less tax deductions the less benefit 09:25 is going to be because there obviously 09:26 there’s a there’s a fee involved in the 09:28 service 09:29 although it’s not a it’s not a really 09:30 big one whatsoever and 09:32 almost nothing compared to the the tax 09:34 savings but the smaller the property you 09:36 get 09:36 the more that actually comes into play 09:39 is it worthwhile or not 09:41 um and that second factor is how long 09:43 you’re going to hold the property for 09:45 and the reasoning behind that 09:47 is because there’s something called 09:48 depreciation recapture tax 09:50 okay so when you sell a property you 09:53 have to pay a tax on the unrealized gain 09:56 okay so besides for the capital gain 09:57 what you’ve actually realized you’ve 09:59 you’ve you know made profit on the sale 10:01 you have to pay a tax on that amount or 10:03 you’re subject to that tax you’re also 10:04 subject to 10:05 what’s called the unrealized gain the 10:06 amount of depreciation you took 10:08 you know are taxed on that as well on 10:11 the sale 10:11 now there are strategies to get around 10:14 that or defer that like a 1031 exchange 10:16 you can defer that tax you can also you 10:19 know find other ways to get 10:20 losses from other properties the great 10:22 thing about real estate 10:24 is that if you are a real estate 10:26 professional 10:27 and this is something that is another 10:29 really important component here 10:31 that this is when it’s going to make 10:32 sense the most okay 10:34 if you’re not a real estate professional 10:36 then which means you’re involved 10:38 materially participating in a real 10:40 estate trader business 10:41 then you’re limited to use those tax 10:44 deductions 10:45 against your real estate income okay so 10:47 without getting too 10:48 complex over here or too deep into you 10:50 know tax code 10:52 income from real estate is called 10:54 passive income okay it’s different 10:56 treated differently than any active 10:57 income w-2 income you might have 10:59 and that is um a great thing it’s 11:02 passive it’s on your schedule e 11:03 and any depreciation you have is going 11:06 to be used that’s called a passive 11:07 deduction a passive loss is going to be 11:09 used against that if you had more 11:12 deductions than you actually have 11:13 income let’s say you do a conservation 11:15 study and you take what’s called bonus 11:17 depreciation to get that huge 11:18 front load in the first year and you get 11:21 a million dollars of depreciation 11:23 but you only made a hundred thousand 11:24 dollars from of profit right of net 11:27 operating income from your 11:28 property so what happens to that extra 11:29 900 000 11:31 of deductions does it disappear like 11:34 what do you do with it can you use it 11:35 and this is where a lot of confusion i 11:37 get i mean i see some bigger pockets 11:39 like 11:40 at least once a week this question comes 11:42 up is like well can i use depreciation 11:44 against my w-2 income and the answer 11:48 generally is 11:48 no okay there are exceptions to that and 11:51 again if your real estate professional 11:52 or your spouse is 11:54 then that is a possible way to do that 11:56 but generally speaking 11:57 passive deductions against passive 12:00 income 12:01 okay those extra losses will just carry 12:04 forward 12:04 you’ll just use them in the future years 12:06 okay and they don’t go away 12:08 until you sell the property so that’s 12:09 another time to create these extra 12:11 losses are great if you sell the 12:12 property 12:12 you can use those losses to offset the 12:15 gain 12:16 the tax but another strategy that you 12:19 can do is even to get the conservation 12:20 done but 12:21 nevertheless you do want to make sure 12:23 you’re going to talk to your cpa 12:25 to make sure this fits with your 12:26 investment strategy and with your 12:28 overall picture 12:29 so you know the the recapture is 12:32 something that 12:32 you know a lot of people don’t really 12:34 understand and we’ve had to educate a 12:35 lot of our investors on that as well 12:37 right 12:38 and i think that plays into when do you 12:40 do it 12:41 and you know is this part of your 12:43 overall exit strategy 12:45 you know i kind of look at it like if 12:46 you’re going to sell the property 12:48 correct me if i’m wrong this is just my 12:49 assumption 12:50 right you know if you’re gonna sell the 12:52 property within the first couple years 12:54 cost segregation might not be the best 12:57 strategy for you right 12:59 you know yeah you’re gonna get a little 13:00 bit year one but if you turn around and 13:02 then sell the property 13:04 you’ve got a ton of recapture that your 13:06 investors 13:07 you know now we have a different tax 13:09 strategy i’ll kind of get into mine as a 13:10 as a real estate professional and as a 13:13 you know full-time syndicator but 13:15 for my investors they’re going to get 13:16 hit they’re just going to turn around 13:17 and get hit with it 13:18 right they’ll get that deduction but 13:20 then they’ll get hit with the the tax on 13:22 yeah so i mean i look at it like okay if 13:24 it’s going to be maybe a 13:25 you know more of a longer term let’s 13:27 call it four to seven years 13:28 you know it makes more sense to do cost 13:31 segregation at that point right because 13:34 you’re going to be able to you know 13:36 actually benefit 13:37 for a little while from that 13:38 depreciation right that’s that’s less 13:40 money that you have to pay the tax guy 13:42 and um you know so i mean i kind of look 13:44 at it like that and so that’s kind of 13:45 been the misconception where people 13:47 automatically on every single deal think 13:49 that they should do it 13:50 um you know but there’s there’s strategy 13:53 for everything right 13:54 you know you know so that’s that’s 13:56 that’s but the way that we look at it 13:58 too right is 13:59 um you know we have gains from sale of 14:02 property 14:03 right and then i but i then i turn 14:05 around and i buy deals and i get 14:06 i get depreciation from that so it 14:08 offsets a lot of this right you know i’m 14:11 using it almost 14:11 as my built-in 1031 right um 14:15 you know and everybody’s tax situation 14:16 is different right but if you’re getting 14:18 a bunch of capital gains from sales but 14:19 you’re buying a bunch of deals you’re 14:20 doing cost segregation on them 14:22 then guess what it’s going to net out 14:24 and a lot of 14:25 you know but yeah no you know and some 14:27 of those losses 14:29 are so big that you can’t even take them 14:30 in one year you’re just you’re just bow 14:32 waving them 14:33 you know into the future they’ll just 14:35 keep you know adding up and adding up 14:37 no there’s it’s it’s a tremendous amount 14:39 right you know and i think the other 14:41 thing too to kind of bring up 14:43 you know is and this has been a debate 14:45 amongst 14:46 amongst syndicators too right you know 14:49 do they get or should they get 14:52 the benefit of the depreciation or 14:54 should that flow a hundred percent 14:57 to um you know and i’d like to have both 14:59 you guys opinions on this 15:01 you know should that flow 100 to the lps 15:03 or the investors 15:05 i’ll start with you you know i mean what 15:06 do you what do you think about that 15:07 what’s your what’s your stance on that 15:09 sure i mean there are two definitely 15:11 different opinions and it really does 15:13 have 15:13 a lot to do with uh two things number 15:16 one 15:16 how you structure the operating 15:18 agreement okay and however you do 15:20 structure that that’s going to determine 15:22 you know how that depreciation is going 15:23 to be allocated is it going to be 15:25 equally you know among the 15:27 equity ownership or is it going to be 15:29 solely to 15:30 where the money is right some people say 15:32 follow the money uh wherever the money 15:34 goes like that’s who’s going to get it 15:35 so there’s really two those are two 15:37 different uh opinions there but either 15:38 way i think 15:39 is um for lack of a better word kosher 15:42 right they’re both 15:43 um considered appropriate and you know 15:45 can be backed up 15:46 by different things whether or not i’m 15:48 not sure if your question is what 15:50 what is the uh you know appropriate like 15:55 yeah what’s your stance right you know 15:57 yeah i mean i think 15:58 if if i’ll just you know interject my 16:00 opinion here 16:02 i think the uh the syndicators are doing 16:04 a lot of work and the ones that are 16:06 really 16:06 what’s called materially participating 16:08 in the real estate i mean they’re 16:09 running the property that’s exactly 16:11 what’s called 16:12 real estate investing they should be 16:15 getting 16:15 the tax benefits that come along with it 16:17 so it should be 16:19 as far as i see it according to the 16:20 equity um 16:22 ownership all right so my colleagues 16:24 usually a little bit more conservative 16:26 anton yeah so so suddenly 16:29 obviously from a syndicator perspective 16:32 that’s what you want to hear 16:33 right right so from uh 16:36 the question is what ultimately and i’m 16:39 not sure whether it really has been 16:41 tested in court 16:42 right uh whether whether that argument 16:45 will 16:46 will stand or not right uh the 16:49 safer approach definitely is is as as 16:52 you mentioned jonah 16:53 follow the money right so what what was 16:56 the original 16:57 cash equity contribution and do it along 17:00 those 17:00 percentages uh but naturally i 17:03 understand that from a syndicated 17:05 perspective and 17:06 you do not just have that in real estate 17:08 you have that in other businesses too 17:10 right so all the hedge funds have very 17:13 similar issues 17:14 with the investments that that they are 17:16 doing and naturally they want their 17:19 portion 17:20 their override that they are getting 17:22 that that is that they have 17:24 the benefit of of depreciation whatever 17:27 or or 17:27 other tax benefits whatever whatever the 17:30 type of business is not just 17:32 real estate but always too uh so 17:35 i would say the conservative side 17:38 definitely is the money but 17:39 uh the cash contribution but if your 17:43 tax consultant is comfortable with it 17:46 uh then i would say go with uh 17:50 with with the first version where the 17:52 where the sponsors have the benefit 17:54 as per their uh 17:58 80 20 split or 70 30 or whatever it 18:01 might be 18:01 right and i think the the bigger point 18:03 that i’m trying to make is right it’s 18:04 it’s 18:05 it’s dependent on the sponsor depending 18:08 on the operating agreement 18:10 um you know investors that are listening 18:11 to this podcast they should they 18:13 they need to they need to review that 18:14 right with not only their lawyer but 18:16 their 18:16 their cpa and understand how that’s 18:18 going to work for them right 18:19 because i think you also brought up a 18:21 good point too you know that i want to 18:22 kind of drive home 18:23 right you know if you’re not a real 18:25 estate professional 18:27 some of these losses are just going to 18:28 be kind of in suspense 18:30 right you can’t even use them exactly 18:32 yeah they’re just so you know 18:34 a lot of people talk about oh we’re 18:35 going to do a cost segregation study 18:37 right 18:38 but if you can’t use the and we didn’t 18:40 and for 18:41 and and nobody should ever try to bake 18:43 that into any kind of returns because 18:45 everybody’s tax situation is different 18:46 right but i love how we see some 18:48 sponsors that will say oh you’re going 18:49 to be able to write off 18:50 75 of your you know uh your initial 18:53 investment i don’t know 18:54 you know um you know what that really 18:56 means right because each person’s 18:58 situation is different 18:59 but i think the point that i’m trying to 19:02 make is that investors need to 19:03 understand that it might not 19:04 it might not work for them at all um you 19:07 know 19:07 maybe it will maybe it won’t it just 19:09 once again depends on your tax situation 19:11 and right 19:12 and what you know a designation you are 19:14 right are you a real estate professional 19:16 or are you not 19:17 yeah so so yeah so so ben you brought 19:20 really up 19:21 an excellent point right read that 19:22 operating agreement and understand it 19:25 right so whatever the decision is right 19:28 in the of the two options uh the 19:31 sponsors obviously 19:33 will have to make that decision right do 19:36 the sponsors get the benefit of that 19:39 depreciation and 19:42 you need to know that as a as a as a 19:45 passive investors 19:46 right it’s similar to that order 19:49 discussion that we 19:50 constantly hear right which is a return 19:53 on capital and we turn off capital 19:56 that’s another topic where a lot of 19:58 passive investors only get that 20:00 big wake-up call once they 20:04 once they get distributions and 20:06 particularly when the property is sold 20:08 and suddenly realized well but that’s 20:10 not what i thought that was signing up 20:12 to 20:13 right so it’s all about read that 20:16 operating agreement and actually 20:18 understand it 20:24 you know about more about the process 20:25 right sure you know 20:27 um and i’ve gone through this but i’d 20:29 like you to kind of explain it to our 20:30 listeners as to 20:32 you know when should a sponsor or an 20:35 owner reach out to you 20:37 what types of properties is this most 20:39 beneficial on 20:41 and you know how long and what does that 20:42 process look like i know there’s several 20:44 questions in that one question but 20:46 you know um maybe we’ll start off when 20:48 such 20:49 should somebody engage you yeah i mean 20:52 it 20:52 it really does depend uh the best time 20:54 and like you said a lot of people like 20:55 to get it done in the first year 20:57 immediately after taking over the 20:58 property and it is really 20:59 best in many situations to get your 21:02 taxes 21:02 set up the right way in your first year 21:04 of tax filing 21:05 so that’s why a lot of people like to 21:07 get it done there is another component 21:08 there which is that 21:09 when you’re doing a major renovation or 21:12 even capital improvements on a property 21:14 if you get the concentration done on the 21:16 acquisition there’s actually a second 21:18 component that can be applied to 21:20 renovations that have been done 21:21 subsequently 21:22 so it’s best to get the conservation 21:24 study done 21:25 you know as soon as possible so you can 21:26 capture what the property is and how you 21:29 can depreciate everything in it as is 21:31 and then when those renovations or 21:33 updates are done you can now capture the 21:34 depreciation 21:35 on that later on so that’s the first 21:37 thing the second 21:39 thing i would say is that it it like i 21:40 said it does depend 21:42 because you don’t necessarily even have 21:43 to do it there’s no rule requiring you 21:46 to do it in the first year and so for 21:48 some people 21:49 if your property is not really operating 21:51 uh at on 21:52 with in profit for example then to get 21:55 extra deductions 21:56 doesn’t necessarily make sense it may 21:58 make more sense to get it done in the 21:59 second year 22:00 and you you don’t really miss out on 22:02 anything you actually can catch up 22:04 whatever depreciation 22:05 you missed you could have taken the 22:06 previous year and all that can be done 22:09 uh without amending your tax returns so 22:11 you’re really just changing your 22:12 accounting method making an adjustment 22:14 with a special form that’s done 22:16 and and that’s done in a lot of ways a 22:18 lot of people do that even 22:19 two three f up to five or even ten years 22:22 back you know if they’re holding a 22:23 property for a long time 22:24 they didn’t need those losses now 22:25 suddenly they come into a huge profit of 22:27 some kind 22:28 and you need those losses it’s a perfect 22:30 strategy in a situation like that 22:33 where uh you know you may not have 22:35 needed it at a certain point maybe like 22:36 you said you had like this abundance of 22:38 losses but what happens if you know you 22:40 didn’t 22:40 you didn’t sell or whatever and you held 22:42 properties you didn’t acquire anything 22:43 new for a couple years 22:44 and all of a sudden you need those 22:46 losses it’s a great strategy to get it 22:48 retroactively 22:50 what what types of assets though you 22:52 know i mean 22:53 we’re we’re mainly in the multi-family 22:55 sector right right you know 22:57 where it makes a lot of sense to do this 22:59 right 23:00 is there other asset classes where maybe 23:02 it’s your 23:03 you can still do it but you don’t get as 23:05 much benefit you’re just trying to kind 23:06 of give our listeners some perspective 23:08 as to you know if you have this asset 23:10 class you should reach out to yonah 23:12 it really can be done on anything on any 23:15 asset class whatsoever and i mean we’re 23:16 the biggest at this point the biggest 23:18 national conservation firm and so we’re 23:20 doing like 23:20 about 3 000 of these a year we’ve been 23:23 around for a long time so we do 23:24 literally everything i mean 23:26 there are certain properties that do 23:28 have more benefit than others so i’ll 23:29 give you a typical example for 23:31 multifamily as you’re probably aware 23:32 you’re going to get on average about 25 23:34 to 30 percent of that accelerated 23:36 depreciation which means the amount that 23:38 you can take as a faster depreciation 23:40 from the structure 23:41 which will remain on that 27.5 year 23:43 schedule for 23:45 certain the probably the worst type of 23:46 properties that you can do which may not 23:48 be beneficial at all are 23:50 like warehouses where there’s not a lot 23:51 of personal property in there 23:53 okay it’s usually just kind of bones 23:55 right 23:56 in that situation yeah you might be able 23:58 to get five to ten percent 24:00 um in some cases or if there’s a lot of 24:02 land improvements which you know 24:03 landscaping and pavement that 24:04 gets a 15-year schedule that can be um 24:07 deductible up front as well 24:09 that may be appropriate however 24:11 warehouses are probably like the least 24:13 on 24:13 the bottom rung of like uh most benefit 24:16 you know least beneficial properties 24:18 um single-family houses are less than 24:20 multi-family although can still be 24:21 beneficial again 24:22 it kind of have to meet that threshold 24:24 of is it expensive enough 24:25 is it worth enough to get those benefits 24:27 and then on the other end of the 24:29 spectrum 24:29 and everything in between office retail 24:32 you know self-storage 24:33 all that stuff is really really 24:35 beneficial 24:36 along the same lines of multi-family 24:40 but on the other end where’s like the 24:41 highest best possible property i mean 24:43 you have 24:44 above multi-family you have like hotels 24:47 and assisted living facilities which 24:48 have a lot more equipment 24:50 and a lot more you know furniture and 24:52 fixtures and things like that 24:53 and then even higher than that you’ll 24:55 get you know uh very 24:57 expensive manufacturing facilities that 24:59 have again lots of equipment and things 25:00 and then even above that you’ll have 25:02 mobile home parks 25:03 and golf courses and so those two asset 25:06 classes are really 25:07 really unique well let me ask you about 25:09 the mobile home parks i was actually i 25:10 was under the impression that that would 25:12 be less right because it’s mainly 25:14 you own the land but maybe you don’t own 25:15 the the the 25:17 the homes themselves right i mean you 25:20 know i guess 25:20 why would you say that that’s higher 25:22 than than those other asset classes 25:24 so typically and i’ll tell you exactly 25:26 why typically we’re seeing just to give 25:27 you a perspective and we’re 25:28 it’s been a very hot asset class 25:31 recently 25:32 i’m sure you’re aware right mobile home 25:33 parks whatever you want to call it 25:34 manufacturing communities 25:36 manufacturing housing communities 25:38 typically between 50 and 80 percent 25:40 of accelerated depreciation on mobile 25:42 home parks as opposed to your 25 to 30 25:44 percent on on 25:45 multi-family the reason why that is is 25:48 you you typically have 25:50 two scenarios in a mobile home park you 25:52 either have what’s called park owned 25:54 homes 25:54 or tenant owned homes or a combination 25:57 of both so let’s take the most common is 25:59 usually what’s called tenant homes which 26:00 means 26:01 you buy this you know park this piece of 26:03 property and on it 26:05 are these concrete pads and on each one 26:07 of those are these little dinky little 26:09 mobile homes right and the tenants own 26:11 them 26:12 so they’re owned by the tenants you’re 26:13 really just renting out the the space 26:16 to them that’s the typical like that’s 26:18 the classic case of a mobile home park 26:20 now in that scenario if you think about 26:22 it what do you actually own 26:24 you own the land like you said but you 26:26 also own the land 26:27 improvements and the land improvements 26:30 which i mentioned before depreciated on 26:32 a 15-year schedule 26:33 that’s accelerated depreciation a lot of 26:36 that you’re talking about the roads the 26:37 landscaping 26:38 the pads under each home right concrete 26:42 gravel whatever that is fencing anything 26:44 outside 26:45 all that you own and that’s essentially 26:47 what you have of course you’re 26:48 allocating a cernan to land but what 26:50 else is there there’s just the land 26:52 improvement so that’s why 26:53 if you buy a million dollar park and all 26:55 you own is the land and land 26:57 improvements 26:57 and there is some infrastructure thing 26:59 sometimes that is on a 27.5 year 27:01 schedule like some concrete you know 27:03 things or or even the infrastructure of 27:05 the 27:06 plumbing or main electric or you know um 27:09 sewage 27:10 but the majority like i said 50 to 80 27:12 percent is in that 27:13 land improvements and so that can be 27:15 taken as first year bonus depreciation 27:17 it’s uh you know it’s absolutely i love 27:19 doing these things man see i’m learning 27:21 some new stuff too 27:22 yeah you know that’s great so there’s no 27:24 impression it was the opposite of that 27:26 right 27:26 that there was going to be very little 27:28 that you could that you could uh 27:30 use a cost segregation study on so so 27:32 you you mentioned 27:34 also golf courses so so there are you 27:36 telling us that 27:37 the greens and the fairways that they’re 27:40 also part of that 27:41 of that so-called uh land improvement 27:45 that you can depreciate over 15 years 27:47 exactly right same exact thing exactly 27:50 right 27:50 so uh so so now we know why some some 27:53 famous people 27:55 invest in golf courses that’s right no 27:57 politics man no politics 28:00 smart how can i get the most possible 28:03 you know tax deductions 28:05 accountants like buy a golf course okay 28:08 let’s learn how to play golf 28:10 there you go there you go and uh really 28:12 politics aside you would be surprised 28:14 then 28:14 how how many people uh on both sides of 28:18 the political spectrum 28:19 are invested in golf courses i i guess 28:22 yeah 28:22 once again i’m learning something new i 28:24 love it you know not quite there i can’t 28:26 buy my own golf course yet but 28:28 hopefully in the future right but uh all 28:30 right so kind of getting into a little 28:32 bit not a political question but just 28:34 more about what you see in the future 28:36 right you know i know there’s been a lot 28:38 of news about 28:39 you know the new administration might be 28:41 changing up some of the rules and you 28:44 know some of the stuff from the old 28:45 administration might be going away what 28:46 is 28:47 you know which way is the wind kind of 28:48 blowing and what are you guys hearing 28:50 now being that you guys are one of the 28:51 biggest shops in the country if not the 28:52 biggest shop doing cost segregation 28:54 obviously you guys got your ear to the 28:56 ground on on this stuff and sure 28:58 let our listeners know like is you know 29:00 is this strategy going to change in any 29:02 material way in the future 29:03 yeah absolutely and you know and we’re 29:06 in touch with accounting firms across 29:07 the country 29:08 and um and as well as you know some 29:11 policy makers as well 29:12 and we have also the madison 1031 uh 29:15 company which 29:16 with the attorneys that are on that are 29:18 also very closely involved with policy 29:20 going on with the 1031 exchange and 29:22 whether that’s going to go away 29:23 i will preface by saying that the tax 29:25 cuts and jobs act that was 29:26 under the trump administration right 29:28 that made a huge difference with that 29:30 100 29:30 bonus depreciation rule that came out 29:33 that is already in the books to start 29:35 phasing out 29:36 in 2023 which means you know we have all 29:38 this year all next year to take 29:40 advantage of that 2023 it’s in the books 29:42 are ready to start going down to 80 29:43 bonus and then after that 60 until 2028 29:47 it will no longer be 29:48 according to the current law any bonus 29:50 depreciation now 29:52 i tend to not believe anything 29:54 politicians say 29:55 during campaigning um to be honest i 29:58 don’t pay attention to anything 30:00 uh during campaigns whatsoever you know 30:03 but um but you know 30:06 they’re just notoriously liars okay and 30:09 so 30:10 everyone knows that it’s no surprise but 30:12 so to say 30:13 and to quote uh you know the president 30:16 who said on day one i’m going to repeal 30:19 the tax cuts and jobs act and everything 30:21 in it 30:21 well obviously that didn’t happen right 30:23 and and everyone knows that it 30:25 that’s well that’s a joke because to to 30:28 uh you can’t make an executive order 30:30 like that to repeal a huge tax reform it 30:32 has to pass through 30:33 congress has to pass through the house 30:35 there’s a whole process of making big 30:36 tax reforms and the fact that it was 30:38 the biggest tax reform in like 30 40 30:41 years 30:42 that’s not something that you know and 30:43 that congress in both sides of the aisle 30:44 like 30:45 agreed on to to pass those laws 30:48 it’s not something that you’re going to 30:49 just you know do away with obviously yes 30:51 there are some tweaks there are some 30:53 things that have policies they want to 30:54 change certain things 30:55 understandable right but to go ahead and 30:58 wipe out the whole thing so in that i 31:00 don’t think bonus depreciation is going 31:01 to be touched whatsoever conservation 31:03 obviously 31:04 has been around for for decades and 31:05 that’s not going to go away 31:07 whether you like it or not a large 31:09 amount of uh 31:11 politicians congress people own 31:14 real estate or invest in real estate so 31:16 they have a vested interest 31:18 to make sure that this stuff is not 31:19 going to go away whether you like that 31:21 or not 31:21 um but that’s just the reality no and 31:25 and and i think it goes back to you know 31:26 i mean you act you just you made up a 31:29 great point right you know there is a 31:31 ton of people that own commercial real 31:33 estate that are influencers 31:35 right and and so they’ll say one thing 31:37 in public but in 31:38 in in the back rooms they’re saying now 31:40 we’re not gonna do that you know why 31:42 because i own a bunch of that stuff too 31:44 right you know and so and and i think 31:47 you know 31:47 it’s it’s the tax code right you know i 31:49 mean people can get upset people got 31:51 upset about trump’s tax return but 31:53 you know we now realize the reason that 31:55 he was able to only pay 31:56 whatever it was 750 bucks or whatever it 31:58 was something crazy 32:00 and people got mad thinking that he was 32:01 somehow taking advantage of 32:03 it’s just that’s the tax code and cost 32:05 segregation like you just said 32:07 has been around i i feel like it’s been 32:09 around for like 100 years 32:10 it’s been around for a while and so this 32:13 is not anything new the bonus 32:14 depreciation like you mentioned is new 32:17 right but that’s unless maybe focus take 32:19 one minute and kind of explain that that 32:21 i kind of look at that as it’s like 32:22 turbo charging 32:24 the cost segregation right is that 32:26 correct that’s right 32:28 one they’re one in the same once you’ve 32:30 done a cost irrigation study 32:31 and you have allocated those assets to 32:34 those faster lives 32:35 anything that depreciates on a faster 32:37 schedule you can you have the option 32:39 to take it all up front in the first 32:41 year and that’s called 100 32:43 bonus depreciation okay okay 32:46 so i i wanted to ask you a kind of a 32:48 one-off question because you know being 32:49 that we’re here 32:50 i’m here in houston anton’s in dallas 32:53 right 32:54 um you know we’re we have a lot of 32:55 exposure to oil and gas 32:58 right and you know i know i’m getting a 32:59 little bit off topic here but 33:01 you know some of these people as as part 33:03 of their pitch to invest in these oil 33:05 and gas 33:06 you know um you know projects are saying 33:09 you know you can get a 100 year one 33:12 right you know now is that because of 33:15 all the equipment that they have 33:17 or what it you know i mean do you guys 33:19 have a lot of experience in that realm 33:21 there is i mean there are different 33:23 things so you know concentration 33:24 depreciation in general depreciation has 33:27 different forms in different industries 33:30 so real estate obviously 33:32 land you know real estate real property 33:33 depreciates and so that’s how you can 33:35 segregate the 33:36 the cost of the different components oil 33:38 and gas have other different 33:40 tax incentives as well in terms of the 33:42 equipment yes can be 33:44 taxed can be you know written off at a 33:46 faster rate um so 33:48 there are huge tax incentives i would 33:50 say it’s probably 33:51 maybe debatably the the biggest um tax 33:54 beneficiary beneficiary uh industry 33:58 out there uh however i mean the 34:01 difference is 34:02 is that the returns aren’t necessarily 34:04 always the the same so yes there is the 34:06 huge tax advantage when it comes to oil 34:07 and gas as well 34:09 yeah i think you you made a great point 34:11 right so 34:12 um i have invested in oil and gas right 34:15 so i have 34:16 had the advantage of of those 34:19 uh tax benefits but the reality is you 34:23 get these tax benefits when you actually 34:25 drill 34:26 right so and trailing by its nature 34:29 is risky so you need to provide tax 34:32 benefits so that you 34:34 essentially can balance that risk that 34:36 someone is taking it’s an it’s an 34:37 incentive right 34:38 you know absolutely yeah and i guess 34:41 really was it is cost segregation that’s 34:43 that’s a good point right you know it’s 34:44 cost segregation at 34:46 you know it’s an incentive to to invest 34:50 money into these properties and keep 34:51 them keep up with them right i mean i 34:53 think that that’s 34:54 that’s the meta point here right which 34:56 is what drives commercial real estate 34:58 multi-family it’s like 34:59 you have to incentivize entrepreneurs 35:01 and investors to put money into these 35:03 properties 35:04 then sometimes it’s not just necessarily 35:06 you incentivize them through it’s gonna 35:07 be a profitable thing right 35:08 you know just trust me there has to be 35:10 some tax 35:12 you know benefits that go along with it 35:13 too um you know and 35:15 that’s i think that’s why cost 35:16 segregation has lasted so long and 35:18 will continue to last into the future 35:20 you know because you have to have more 35:22 than just hey go buy that property 35:23 and keep up with it um so well i’ve 35:26 really enjoyed it yonah i mean this has 35:28 been i’m like i said i’ve learned 35:30 several things today that i didn’t know 35:31 about um you know but uh 35:34 anton was there any other questions that 35:35 we had uh no not really 35:37 right i think uh uh obviously we want uh 35:41 that our listeners can reach out to you 35:43 iona so 35:44 please provide your uh your contact 35:47 information but before you do that 35:49 i think it might also be helpful for the 35:53 listeners to understand that they can 35:54 reach out to you 35:56 uh early on uh 35:59 when they have a deal under contract so 36:01 they didn’t have to wait until they 36:03 they they already closed on the deal and 36:06 now think about car segregation 36:08 as a matter of fact it’s very beneficial 36:11 to reach out to you 36:12 before you actually go down that rabbit 36:15 hole of closing so that you can 36:18 strategize right from from the get-go 36:21 that’s a great point yeah i’m glad you 36:23 brought that up absolutely yeah 36:25 okay so you all know how how can our 36:27 listeners reach you 36:29 best place to find me is actually 36:31 linkedin i’m extremely active on the 36:33 platform as 36:33 uh any of our listeners if you know me 36:36 know that 36:37 so that’s the best place make sure to 36:38 put a little note that you heard us on 36:41 on on the peak market watch uh podcast 36:44 and 36:44 you can go to my website yonahweiss.com 36:47 obviously i work for madison specs you 36:48 can check out more information there at 36:50 madisonspex.com or just reach out to me 36:52 personally 36:53 awesome right uh it was a pleasure 36:55 having you with us 36:56 and that’s been said you you shared with 36:58 us quite a quite a number of great 37:00 snippets and i really appreciate 37:03 your time thanks joanna we appreciate 37:06 buddy