Cost Segregation Strategy Benefits w/Yonah Weiss
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Episode Description
Welcome to the Freedom Point Real Estate podcast! Jeremy Dyer welcomes Yonah Weiss to today's episode to share about cost segregation, bonus depreciation, recapture, and much more.
Yonah is a powerhouse with property owners' tax savings. As Business Director at Madison SPECS, a national Cost Segregation leader, he has assisted clients in saving over a billion dollars on taxes through cost segregation. He has a background in teaching and a passion for real estate and helping others. He’s a real estate investor and host of the top podcast Weiss Advice.
CONNECT WITH YONAH WEISS!
LinkedIn: https://www.linkedin.com/in/cost-segregation-yonah-weiss/
Website: https://www.yonahweiss.com/
Instagram: https://www.instagram.com/yonahweiss/
Twitter: https://x.com/YonahWeiss
CONNECT WITH JEREMY DYER!
Website: https://startingpointcapital.com/
Instagram: https://www.instagram.com/startingpointcapital/
LinkedIn: https://www.linkedin.com/in/jeremydyer
Facebook: https://www.facebook.com/startingpointcapital
Book a Call! https://calendly.com/startingpointcapital/discuss-investing-with-jeremy-dyer?month=2023-12
Summary
Tip #1: Embrace Cost Segregation for Immediate Tax Benefits
“Cost segregation allows you to accelerate depreciation, which can lead to significant tax savings.”
Cost segregation divides a property into its individual components, allowing faster depreciation of personal property and land improvements. This reduces taxable income, boosting cash flow, especially in the early years of ownership. By implementing cost segregation, investors can take advantage of larger tax deductions upfront, resulting in more immediate financial benefits.
Tip #2: Plan for Depreciation Recapture to Avoid Surprises
“Depreciation recapture is not as bad as people think. It’s simply a tax that’s due when you sell the property after having claimed depreciation.”
Depreciation recapture is often misunderstood, with some fearing they’ll have to repay all of the depreciation deductions claimed. In reality, it’s a tax on the depreciation claimed, which is generally at a lower rate than ordinary income tax. Investors should plan for this tax at exit, but it’s not as daunting as it may first appear.
Tip #3: Use Passive Losses to Offset Recapture Tax
“Passive losses carry forward and can offset depreciation recapture when you sell the property.”
Passive losses can be used to offset recapture tax at the time of sale. This strategy reduces the amount of tax owed, which is essential for managing your exit strategy. Investors who’ve accumulated passive losses through deductions can take advantage of them during property sale, minimizing their tax burden.
Tip #4: Take Advantage of Lower Depreciation Recapture Tax Rates
“Recapture tax rates are typically lower than your ordinary income tax rate, so you’re still coming out ahead by taking deductions upfront.”
Recapture taxes are usually lower than ordinary income tax, so investors benefit from taking depreciation deductions. This results in greater tax savings upfront, allowing for more immediate cash flow. While recapture taxes will eventually apply, the benefit of early deductions outweighs the long-term tax obligation.
Tip #5: Utilize 1031 Exchanges to Defer Recapture Taxes
“If you plan to use a 1031 exchange, you can defer depreciation recapture by rolling your gains into a new property.”
A 1031 exchange allows real estate investors to defer capital gains and depreciation recapture taxes by reinvesting in like-kind property. This strategy is essential for growing a portfolio without facing immediate tax consequences. By deferring these taxes, investors can continue to reinvest profits and expand their investments.
Tip #6: Consider Partial Asset Disposition to Reduce Recapture
“Partial asset disposition allows you to dispose of certain components of your property and eliminate recapture tax on them.”
Partial asset disposition allows investors to dispose of items like carpets or furniture that have been fully depreciated, which removes them from the recapture tax equation. This strategy minimizes the recapture tax on property components, reducing the overall tax liability when selling. It’s an advanced strategy that’s not widely known but can have a significant impact on tax savings.
Tip #7: Keep an Eye on Legislation for Bonus Depreciation Updates
“There’s bipartisan support for bringing back bonus depreciation in 2025, which could be a game-changer for real estate investors.”
Bonus depreciation allows real estate investors to deduct 100% of the cost of qualifying property in the first year. Yonah predicts it’s likely to return in 2025, potentially providing major tax savings for investors. Being proactive and staying informed on legislative changes will ensure you’re ready to capitalize on these opportunities.
Tip #8: Stay Proactive in Learning About Tax Strategies
“Engage with experts, ask questions, and build relationships to stay ahead in the ever-changing world of tax strategies.”
Tax laws are constantly evolving, and staying updated on the latest changes is crucial for real estate investors. Building relationships with tax experts and continuing your education ensures that you are prepared for shifts in the market or policy. Proactively seeking knowledge allows investors to remain competitive and make informed decisions.
Tip #9: Don’t Rely on Online Forums for Tax Advice
“Many forums like Bigger Pockets spread misconceptions about depreciation recapture and cost segregation. It’s important to get advice from reliable sources.”
While online forums can offer insights, they can also be full of misinformation regarding complex tax strategies. Always consult tax professionals to ensure that you’re applying the right strategies for your situation. Relying on expert advice rather than forum opinions ensures you’re making sound financial decisions.
Tip #10: Connect with Yonah Weiss to Learn More
“Don’t just follow me—send a note! It takes 10 seconds and helps create a meaningful connection.”
Networking is key in real estate investing, and reaching out to professionals like Yonah can lead to valuable insights and opportunities. Don’t hesitate to connect with experts to foster relationships and grow your knowledge. Meaningful connections can help guide you toward more effective tax strategies and better decision-making.
