Cost Segregation with Yonah Weiss
What is cost segregation and why is it of importance to for real estate investors? What are the benefits that you can use Cost Segregation in your business? Will Cost Segregation help you build your portfolio? All of these questions and more are addresses in our podcast episode with special guest Yonah Weiss. If you would like to gain more information from Yonah and his company Madison Specs, please visit their website here:
You can also reach out to Yonah professionally at: https://www.yonahweiss.com/
Listen to Podcast Episode
Cost Segregation is one of the largest tax savings that a professional real estate investor can obtain. It allows you to lower your tax liability based on the acquisition cost of various properties year after year. As an investor, you have the option to choose when to forcefully depreciate each asset that you have acquired. That means that if you purchased an asset for $1,000,000 and after your segregation study you may find that the property is eligible for $800,000 of cost segregation from tax. You can choose to sink the cost segregation amount in year 1 of ownership or year 25. As an investor, you’re able to choose how that tax credit is utilized.
Video of Podcast Interview
Not every tax professional or CPA has the needed qualities and methods to help you conduct a cost segregation study. This is why it is important to make sure that you have access to the professional support that is needed to accelerate your portfolio further.
Further Explanation of Cost Segregation
Bonus Explanation Video of Cost Segregation
This is a bonus strategy that we encourage our clients to use. This strategy will help any real estate investor lower their tax liability so that they’re in the best position possible to purchase their next asset. Take notes and let us know if this is a strategy that you utilize.
Example of Cost Segregation (Diagram)
Transcript of Podcast
All right, guys, thank you so much for your patience. So today we have an amazing individual Yonah. How are you doing?
Yonah doing pretty well, thank you. Thank you. Thanks for having me.
Awesome. Awesome. He’s going to explain to us a few of the benefits of Madison Speck. We know that a lot of you guys listening who are working professionals, sometimes you guys have heavy tax bills or tax burdens at the end of the year. And so if you want to figure out a way to make it, Masche or Canek, when it comes to real estate investing and alleviating some of that tax burden, then listen up very, very closely. All right.
So, folks, can you kind of just let us know the type of clients that you work with and who gets the biggest benefit from working with your company. So typically speaking, and just for a little clarity, we do something called cost segregation. Right? So it’s a tax benefit specifically for real estate owners. The people I work with the most are real estate investors, real estate owners. But those who benefit the most are those who are full-time real estate professionals, meaning either you or your spouse.
Only one of you needs to have this status. But that means you’re working full time in the real estate trade or business, whether that be you’re owning properties, managing, operating, acquiring, brokering, developing anything like that or anything of those occupations, you actually get special tax treatment from the IRS that allows you to to not just get huge tax deductions, but actually be able to use them to the maximum benefit as opposed to just maybe creating losses, which happens to a lot of people.
OK, and so when it comes to using those benefits as an investor, what could I use that money for in the future? How could I help me? How could that help me expand my portfolio?
Well, it really helps you more than in the future. It helps you in the present more than anything, because what everyone knows, the largest expense that any individual or business has is your tax bill, your income tax bill, and with accelerating depreciation through cost aggregation, which is essentially what we do, it allows you to offset or eliminate your tax liability, your income tax liability. However, it’s unless you’re that real estate professional, it’s going to be limited to your rental property income.
So if you own properties, if you own or you have a business that owns the property and rental properties, you can use that depreciation to knock away totally eliminate your rental property income. So that’s what’s really going to benefit you now in the present. That’s freeing up all of that cash flow to then reinvest and make money on your money and your money. Make money.
Awesome, awesome. Awesome. And thank you. Can you hop in whenever I’m talking a lot already, so feel free.
No problem. No problem. But I have a question. I have is does what you’re talking about, does that apply to either new market tax credit products or low-income housing tax credit products? Any of the above type of investment, property or business property has depreciation benefits and can get huge tax deductions through that. So it doesn’t necessarily depend on the tax credits which may be coming from other places. Tax credits will definitely be coming potentially to help with the property tax as well.
And other things like that were speaking of the property tax, some of the new market tax credit or low-income housing tax credits might have. Sort of like a reduced. A property tax scale for about 10 years. OK, and in the exact terminology escapes me right now, but. What I’m hearing you say is that that just helped to put. Extra money in your pocket. Am I reading you properly? Right, exactly.
So there are many different strategies to be able to lower your taxes. What we do is specifically talking about income tax. So you will still be tax property tax things and their income credits like that that can help you out in different types of property tax abatements and things. But what we do is something totally different. So if you can knock it off, it’ll knock down taxes in many different areas, then I think it’s it’s a great way to do it.
OK, OK, I understand.
Awesome, awesome. Awesome. So, for example, is this something so you have to be a full-time investor to understand that this is something that someone with a larger portfolio will benefit the most from a kid. Could this also help those who are just getting over their first or second acquisition? It can help anyone. It can help anyone, even in their first or second acquisition. It will help the more property you have and the more money you’re making, the more it’s going to benefit you, right.
Because the more income tax savings you can have, the better. And the more properties you have in the more expensive the properties are, the more potential tax benefits you can get from that. So you talk about people like President Trump and Jared Kushner in the news and everything that is getting a bad image that they’re they’re somehow not paying taxes. Right? They’re gaming the system. But it’s not it’s right there in black and white in the tax code.
You just have to be smart enough or have smart enough accountants to be able to take advantage of those deductions. And a lot of it just is because people don’t know about it, they don’t know they exist. And accountants are not proactive enough to actually do that for you. So, yeah, it’s in there. So, again, people like that’s how probably the majority of real estate mogul’s real estate investors have been able to scale their businesses through not just the income and the appreciation, but more importantly, the doing it all without having to pay taxes.
And just so that everyone can hear nothing illegal is taking place, this is all legal. OK, despite how you feel about different people, they’re playing by the rules. Nothing’s illegal. This is just part of the tax code. And the tax code can change every day with your company. When did you guys notice that this was a big opportunity or a problem that people weren’t taking advantage of?
Well, it’s been around in the tax code for the past 30, 40 years, it’s taken different stages along the way. But it we’ve been around for about 15 years and the founders of our company were in the industry and doing it for tax firm, for accounting firms, the large accounting firms that were doing it in-house. So the largest accounting firms were doing in-house. And we’re basically helping the biggest corporations and the biggest people doing this. And the small fish didn’t really know about it.
And what I found over the past few years that I’ve been doing this is that a lot of new investors, people that are getting involved and a lot of people out of late have been interested in real estate and finding alternative assets, alternative investments, seeing ways to maybe spread out their diversify their portfolio of investments. And they still don’t know about conservation because it’s like this one tiny little piece of the puzzle. And so what we’ve done, what I’ve done focused on is just trying to educate the masses at large.
And it’s been it’s been very successful also.
And my question is for the little guy that’s getting into real estate, the big guys, they know all about the bells and whistles. But approximately how much would the analysis? Or the study, segregation study, or analysis, roughly how much would it cost a person to do that? Sure. So it depends on the type of property, the size, and the shape of the property, not necessarily on the tax benefit. It’s not a contingency fee like some other tax-saving products out there, some property tax savings.
People will charge you a percentage of your savings. We have a flat rate and it’s usually a few thousand dollars to get the study done minimally. So somewhere between three and six thousand dollars, depending on the size of the property. And this can be done from single families all the way up to the skyscrapers behind me. We’ve done plenty of those. And so it really starts to make sense when you do the math and we’re talking about how much maybe 20 percent of your purchase price you can take as an upfront tax deduction really starts to make sense when you’re the bigger property is right.
If it’s just a fifty thousand dollar single-family rental, you’re not going to get much out of that. Right. You may get a few thousand dollars of tax benefit, but you’re going to pay a few thousand to get the study done. It doesn’t make sense. Right. So my rule of thumb is usually any property purchased for over half a million dollars. That’s where you see a major like 10 X benefit below that. You still may find benefits and it’s worthwhile to look into.
We provide a free estimate for any property. So you can already see upfront what your what you can expect if you were to decide to do a conservation study. So it’s is definitely worthwhile to look into approximately how long will it take.