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Unlocking Tax Strategies in Real Estate with Yonah Weiss · Go Big with Gib Podcast

• 0:00
  Speaker 1: Welcome to the Go Big with Gibb podcast, where we talk to professionals, business owners and entrepreneurs about their big wins.
• 0:06
  Speaker 1: Welcome to this episode of the Go Big with Gibb podcast.
• 0:17
  Speaker 1: Today, I've got a very special guest, yonah Weiss, here with us.
• 0:21
  Speaker 1: Yonah, how are you today?
• 0:22
  Speaker 2: I'm doing great, Gibb.
• 0:23
  Speaker 2: Thanks so much for having me on the show?
• 0:25
  Speaker 1: Absolutely no.
• 0:26
  Speaker 1: It's fantastic to have you, yona.
• 0:28
  Speaker 1: I like to start out every episode with asking the guest if they could just take a few minutes to briefly introduce themselves and tell us a little bit about yourself.
• 0:37
  Speaker 2: I appreciate that.
• 0:38
  Speaker 2: Thanks so much.
• 0:39
  Speaker 2: My background before I got into the real estate world, which has really been my world for the past nine years or so, but before that I was a teacher for about 15 years and that was really my passion since I was a kid, I did teaching, I did, you know, counseling and those type of things for youth groups and that type of stuff, tutoring all throughout college.
• 1:02
  Speaker 2: And you know, at a certain point, the teacher's salary, you know, just doesn't, it just doesn't.
• 1:09
  Speaker 2: You know it doesn't meet the bill.
• 1:12
  Speaker 2: And unfortunately well, fortunately, I should say with a growing family I have six kids and it was very difficult to really make ends meet.
• 1:20
  Speaker 2: And you know, besides, for the student debt that I had and we had some health issues in our immediate family, it was just, you know, medical bills.
• 1:27
  Speaker 2: It was getting, to put it lightly, unbearable to see what possibilities were out there that I wouldn't necessarily have to go back to school or do any other sort of formal education, and real estate kept coming up in conversation, and so I just decided to stick my foot in the water and get started.
• 1:56
  Speaker 2: Well, I didn't know what that meant, and meeting a friend in the parking lot one day, kind of serendipitously, he mentioned that he was a mortgage broker doing commercial mortgages for many years.
• 2:06
  Speaker 2: I had no idea what that meant at the time but I was like, yeah, sure, sounds great.
• 2:11
  Speaker 2: He's like come work with me.
• 2:12
  Speaker 2: I'm like, okay, why not?
• 2:13
  Speaker 2: Like I really didn't have.
• 2:15
  Speaker 2: I was open to opportunity and it was really at that point in my life that I needed some change and I ended up literally just apprenticing this friend of mine, sitting in his office, you know, four days a week and learning the whole commercial real estate business.
• 2:29
  Speaker 2: He not only was a broker but he was a lender and he owned his own several multifamily properties on his own that he personally managed and, you know, was doing a lot in the real estate space for a lot of years and I learned literally everything there was to know, at least I thought and the main thing that I got from that was that it's about the networking more than anything else and that, to me, just opened up so many new doors.
• 2:52
  Speaker 2: I ended up becoming, getting my realtor's license and becoming a broker, doing some fix and flips, and then moved from, you know, kind of jumped around the real estate space until I was presented with this opportunity to join this company, madison Commercial Real Estate, madison Specs.
• 3:07
  Speaker 2: That was about seven years ago and I was really kind of interested in at that point just learning different things about real estate.
• 3:17
  Speaker 2: And here was something new that I really had no idea about, which was this thing called cost segregation.
• 3:22
  Speaker 2: But to my surprise, after speaking with several people that I knew in the real estate space, I learned that no one else knew what this thing cost segregation was either.
• 3:31
  Speaker 2: And my teacher's cap went on and I was like wait a second, this is like prime opportunity because nobody knows what this is.
• 3:42
  Speaker 2: Yet it's such a powerful tax savings tool, as I learned.
• 3:47
  Speaker 2: And the light bulb really went off when I had reached out to one of my mentors.
• 3:51
  Speaker 2: A good friend of mine who is a very successful real estate developer, developed, you know, very high quality logistic centers, you know million square foot Amazon centers or things like that, and I reached out to him.
• 4:03
  Speaker 2: You know I'm, you know, offered this job with Madison specs cost segregation, you know what this is.
• 4:08
  Speaker 2: And he's like oh, yeah, sure, we use Madison for all our cost sex, you know, like that was his response, and to me I was like Okay, so it's a good thing, he's like it's a no brainer.
• 4:16
  Speaker 2: And that was the first time I kind of heard that comment and that's when the light bulb went off.
• 4:21
  Speaker 2: It's like, wait a second, here's an extremely successful real estate developer.
• 4:25
  Speaker 2: You know in the game for decades, he knows what it is, but everyone else that I talked to, whether my broker friends or people that are, you know, small time kind of real estate investors, have no idea what it is and I was like there's a big gap here and that's I felt like it was kind of my calling a sense to bridge that gap and just educate people about what this was and really, to be honest, give that's been my role for the past six, seven years or so is just literally educating as many people as possible about this, because once you know what it is, as my friend said, it's a no brainer and that that was so powerful to me.
• 5:05
  Speaker 1: Yeah, I love that.
• 5:06
  Speaker 1: I personally have employed the the cost segregation analysis in the past with some of my real estate properties and it really has been a no brainer.
• 5:17
  Speaker 1: Talk to me a little bit about what is cost segregation.
• 5:20
  Speaker 2: It's a tax, as I mentioned, a tax savings strategy for income tax, and really what it is, it's an advanced form of depreciation.
• 5:28
  Speaker 2: So anytime you buy a property besides for your primary residence, whether it's commercial or residential, you're allowed to take a tax, income tax write off, called depreciation, and essentially what it means.
• 5:39
  Speaker 2: It's a borrowed term, right?
• 5:40
  Speaker 2: It doesn't mean that you're actually your property is actually going down in value, right?
• 5:43
  Speaker 2: It doesn't mean that your property is actually going down in value, right?
• 5:46
  Speaker 2: It just means that you're able to take a deduction every single year as if your property was going down in value.
• 5:50
  Speaker 2: So think of it like, like I said, a borrowed term, but it's like borrowing from yourself, in a sense, and using these tax deductions for your own benefit, because essentially what happens is you're literally able to write off the entire value of any property that you buy over a long period of time, right?
• 6:10
  Speaker 2: So for commercial properties, over a 39 year period.
• 6:12
  Speaker 2: For residential, including multi-family, it's over a 27 and a half year period.
• 6:16
  Speaker 2: So they gave these kind of arbitrary uh timelines for this depreciation deduction, so you can't take it all as a big lump sum at once.
• 6:25
  Speaker 2: But what cost segregation does is it breaks down the property into different categories, and certain things in the property, certain components in the property, actually depreciate at a faster timeline, which then allows you to take bigger deductions in the earlier years of ownership.
• 6:42
  Speaker 2: So it's like a cash flow mechanism that allows you to take big you know, huge, really very large income tax deductions during the early years of ownership, which essentially it allows people to pay little to no income tax if they're investing in real estate and doing it, you know, on a year by year basis.
• 6:59
  Speaker 1: Yeah, it is a very powerful tool.
• 7:02
  Speaker 1: Can you give us some metrics, like you know?
• 7:04
  Speaker 1: If it was this property, it might cost you know X amount.
• 7:07
  Speaker 1: If it was a different size property, it would be Y.
• 7:10
  Speaker 1: Just some ballpark figures to go by.
• 7:14
  Speaker 2: Sure, the great thing is it's never going to be based on tax savings, meaning it's the price of the cost.
• 7:21
  Speaker 2: Variation study done is always going to be a fixed fee, not based on your tax.
• 7:26
  Speaker 2: So it doesn't matter if it's a million dollar property or $100 billion property.
• 7:29
  Speaker 2: The fee for getting it done is going to be pretty similar.
• 7:32
  Speaker 2: And so it really based on the size and scope of work.
• 7:35
  Speaker 2: Currently, in 2024, the time of this recording, you know, our kind of low end of the spectrum is around $3,000, for, you know, single family properties and then up to, you know, commercial properties can get up to, you know, upwards of $10,000 or so, but typically the average I would say is about $5,000 to $6,000 is how much it's going to cost you.
• 7:53
  Speaker 2: So you know, just to understand what that means in terms of a tax savings perspective, if you buy a million dollar property, your tax savings is potentially going to be, you know, somewhere between 100 to $200,000.
• 8:07
  Speaker 2: Okay, so get it.
• 8:09
  Speaker 2: You know spending a few $1,000 to get this cost creation study done, like I said earlier, is it's just a no brainer.
• 8:15
  Speaker 2: The numbers make sense and therefore, when you multiply that, you're talking about a $10 million property.
• 8:19
  Speaker 2: Just multiply that by 10, your savings are a million to $2 million and you're still paying the same $5,000 or whatever.
• 8:26
  Speaker 2: So obviously, like I said, the benefit increases as the value of the property increases.
• 8:32
  Speaker 1: Yona, talk to me a little bit about the feasibility analysis.
• 8:35
  Speaker 1: I know that I've heard you say in the past that when you do a cost segregation study, you can actually get the engineer that does the cost segregation study to give you some sort of metrics about like okay, if we were to do a cost segregation study on this particular property, this is what we would likely be looking at in terms of tax savings.
• 8:58
  Speaker 2: That's absolutely right.
• 8:59
  Speaker 2: We always run a free upfront analysis just to show you and this is very valuable and to me, I see it as just an educational tool right, You're able to make a much more informed decision if you know ahead of time what your potential tax savings are going to look like and be able to compare.
• 9:16
  Speaker 2: If I did not do cost segregation, what would my yearly depreciation deduction look like?
• 9:20
  Speaker 2: What would my tax savings be?
• 9:22
  Speaker 2: And if I did versus, if I did the cost seg, and then the options of the bonus depreciation as well, as we'll speak about.
• 9:28
  Speaker 2: But it's to me, like I said, an educational tool because it allows you to make that decision.
• 9:33
  Speaker 2: I see a lot of people, especially syndicators, using this when they're under contract on a property and they're looking to see, if we do the cost seg and we invest in this, what are the returns going to be for our investors?
• 9:46
  Speaker 2: How is this going to look and play out in the long run?
• 9:49
  Speaker 1: Sure.
• 9:49
  Speaker 1: So the sunsetting rules surrounding bonus depreciation it's my understanding that I think it was 2022 bonus depreciation was 100 percent.
• 9:59
  Speaker 1: 2023, it was 80 percent and here you know, like you said, we're recording in June of 2024, and it's 60%.
• 10:09
  Speaker 1: So how does that work Like if you're only able to take 60% bonus depreciation in 2024?
• 10:17
  Speaker 1: What happens to the other 40%?
• 10:19
  Speaker 2: Sure.
• 10:19
  Speaker 2: So let's give maybe a little bit of background and context of what is this bonus depreciation?
• 10:23
  Speaker 2: thing, first, because I think a lot of people when I talk to people, especially, you know, even successful investors a lot of people have confusion behind what this is.
• 10:31
  Speaker 2: Is it something different than cost seg?
• 10:33
  Speaker 2: And, essentially, what we need to understand about bonus depreciation, is it's not anything different than cost segregation?
• 10:40
  Speaker 2: That's, first and foremost, what it was.
• 10:42
  Speaker 2: Back in 2017, when there was this big tax reform, the Tax Cuts and Jobs Act, they introduced a new law called 100% bonus depreciation, which said, once you've done a cost segregation study and allocated certain depreciation to faster schedules like we talked about the five-year property, which is interior, non-structural things like furniture, fixtures, et cetera depreciate on a five-year level, and then the 15-year, which is land improvements, things outside the property, like landscaping, pavement, concrete, et cetera.
• 11:12
  Speaker 2: All of that you are eligible for what's called bonus depreciation, which allows you to, instead of taking those deductions over those relatively faster periods five or 15 years, as opposed to the longer, 39 years we're able to take 100% of those accelerated deductions in the first year.
• 11:31
  Speaker 2: So that was 100% bonus depreciation.
• 11:33
  Speaker 2: That was a huge, a huge step right, which meant people were taking like these, you know, huge lump sum deductions during the first year.
• 11:43
  Speaker 2: Now, when that law was enacted, it put in a provision that it phased out over a period of time.
• 11:50
  Speaker 2: So it was good through, you know, from 2017 through the end of 2022.
• 11:55
  Speaker 2: And, as you mentioned, during the year 2023, if you bought a property, that would only be eligible for 80% bonus and this year, 60%.
• 12:02
  Speaker 2: What that means is you're only able to take 60% of those accelerated 5 and 15-year deductions in the first year.
• 12:09
  Speaker 2: The remaining 40% will still be eligible for the faster 5 and 15-year schedules and then the remaining amount of whatever depreciation is left over is going to be on that, you know, remaining 39 or 27 and a half year schedule.
• 12:23
  Speaker 2: So, and it will continue to phase out, next year We'll go down to 40% and then 20 and then zero.
• 12:30
  Speaker 2: Until in 2027, there will not be bonus depreciation unless for some reason, it comes back and there is some legislation on the table right now to reinstate it.
• 12:41
  Speaker 2: However, nothing has passed fully.
• 12:44
  Speaker 2: Obviously, there are stages and legislation goes to the House, then the Senate, then the executive branch, and so there's a whole process to it.
• 12:52
  Speaker 2: It's right now sitting in stage two, and so we're just kind of in a limbo state right now.
• 12:59
  Speaker 1: Yonah, I understand that you don't have a crystal ball and none of us do, right, if you did, we probably wouldn't be having this conversation right now.
• 13:07
  Speaker 1: But how do you feel about the likelihood of them bringing back 100% bonus depreciation?
• 13:14
  Speaker 1: You know, I'm on a lot of email lists.
• 13:17
  Speaker 1: I get emails from a lot of different syndicators that are friends of mine.
• 13:21
  Speaker 1: Colleagues, I definitely have been following the legislation that you talked about and I'm a big proponent of 100% bonus and would love to see it come back.
• 13:31
  Speaker 1: You know, and I can tell you why in a minute here, but do you have any thoughts on how that could play out?
• 13:37
  Speaker 1: I know this is all in the political sphere and it's an election year and there's just a lot of unknowns to it, but I'm just curious.
• 13:46
  Speaker 1: I'm asking for my own curiosity as much as anything.
• 13:48
  Speaker 1: You know.
• 13:49
  Speaker 2: I do believe that it will come back to the 100%.
• 13:53
  Speaker 2: I think the benefits of the bonus depreciation it really did give a you know kind of spur to the economy when it was introduced and I think that was the intention of it.
• 14:04
  Speaker 2: The whole tax cuts and jobs act was to increased, increased productivity right.
• 14:09
  Speaker 2: Give tax cuts to business owners right and that increases productivity increases, you know, gives more jobs, creates more jobs, more more, you know, the economy flourishes, which it did until, obviously, the pandemic happened in 2020.
• 14:22
  Speaker 2: And that kind of uh set everything back a little bit.
• 14:25
  Speaker 2: But you saw the benefits of this tax reform, uh, fully, and I think the bonus appreciation was a big component of it and I do think that it will come back.
• 14:35
  Speaker 2: Whether or not that may take a change of administration for it to come back, we'll see, but either way, what was surprising to me is the law.
• 14:42
  Speaker 2: It was actually in a bill that, as I mentioned, passed already in the House back in January, and this bill was passed like overwhelming majority on both sides of the aisle, so it was bipartisan and literally like 80% of the House voted for, the of the house, like voted to for this bill, and it wasn't just the bonus to you.
• 15:02
  Speaker 2: There were a lot of different things in this bill, including, you know, child tax credits and things like that, but the point being is that I think a lot of people do value something like that being in in the tax law, because, yes, it does benefit, you know, the real estate investors, but essentially there's a trickle down and that benefits a lot of different people throughout the economy.
• 15:23
  Speaker 1: Yeah, I agree with you.
• 15:25
  Speaker 1: I think it was very effective in stimulating the economy and in passing money back to business owners that were going to reinvest and redeploy that money into the economy.
• 15:34
  Speaker 1: So going back to the question I asked you before, just to kind of circle back around to it, I know we talked about putting some context on things and giving some color to what bonus depreciation is and cost segregation.
• 15:47
  Speaker 1: In a year where you can only take 60% bonus, what happens to the other 40%?
• 15:54
  Speaker 2: So the other 40% can still be taken on those relatively faster schedules.
• 15:59
  Speaker 2: Relatively faster schedules.
• 16:00
  Speaker 2: So you know the five-year or 15-year schedules and so what you know multifamily property for example, typically what we're looking at is about, let's say, 70% of the value of the property is going to go into the building and the structure.
• 16:13
  Speaker 2: Okay, that means the roof, the walls, foundation doors, windows, all that infrastructure stuff, and that's on a 27 and a half year schedule.
• 16:20
  Speaker 2: The remaining, you know, 30% or so, is going to go into those faster depreciation schedules.
• 16:25
  Speaker 2: Like I mentioned, the five year which is considered personal property, and then the 15 year which is land improvements.
• 16:30
  Speaker 2: And you know, a garden style multi-year will have a lot of landscaping, maybe a swimming pool, the concrete et cetera.
• 16:36
  Speaker 2: All of that's going to go into the 15 years.
• 16:39
  Speaker 2: So the bonus depreciation allows you to take those five and 15 year deductions up front.
• 16:44
  Speaker 2: Okay, but in a 60 means you'll take 60 of that 30 right of the of those accelerated deductions.
• 16:51
  Speaker 2: The remaining will still be on those faster schedules.
• 16:54
  Speaker 2: So it's still going to be beneficial.
• 16:56
  Speaker 2: And don't get me wrong, cost segregation in and of itself, before bonus depreciation was even introduced, was extremely beneficial, right, even though we were only taking those deductions, you know, on a five year, 15 year schedule.
• 17:07
  Speaker 2: It's still, you know, doubled or tripled your deduction during those you know first five years or so.
• 17:12
  Speaker 2: And so therefore, it was still increasing the cash flow, just not to the insane extent that it did when you had the bonus depreciation.
• 17:20
  Speaker 1: Would the cost segregation study still be beneficial to you in year two?
• 17:25
  Speaker 1: Like, let's say that we do a cost seg in 2024 and we identify and compartmentalize, you know, the five-year property and the 15-year property, would we be able to accelerate the remainder of it in year two?
• 17:42
  Speaker 2: Unfortunately not.
• 17:43
  Speaker 2: So.
• 17:43
  Speaker 2: First of all, the cost saturation study can only be done once.
• 17:46
  Speaker 2: Once it's done, that kind of sets up your depreciation, your tax schedules for all the different components in the property, and once you've established whatever method of bonus depreciation you're taking, that's also set in stone.
• 17:59
  Speaker 2: So you can't then, you know, go back and change that.
• 18:03
  Speaker 2: There is one way to kind of get around that, which is you don't necessarily need to do the cost seg in the first year of ownership, which means you know you may wait until it's most beneficial and that's the amazing thing about it is that it's really a timing thing right when the benefit is going to meet you the most, that's when you should use this tax strategy.
• 18:25
  Speaker 2: So for a lot of people it is the first year, but in some cases you may have a property, for example, that is just not cash flowing right, and so to take extra deductions where you don't actually have any cash flow for it to offset is just going to create these losses and may not benefit you in the current year.
• 18:41
  Speaker 2: In that case it may be more beneficial to wait until year two or three or even four or five and do the cost seg at that point and therefore you're able to catch up whatever missed depreciation you could have taken over those years and take it, you know, in the year that you do the cost seg and in doing so you actually can do what's like almost the same thing as bonus depreciation, because you're getting this big lump sum of missed depreciation that you didn't take during the previous years.
• 19:10
  Speaker 2: So it's not the same.
• 19:12
  Speaker 1: As you know, it's the 100% bonus but the, you know a similar result may come because of that If you want to secure your financial future, go to investwithgibcom to schedule a 30-minute introductory meeting with me, gib Irons.
• 19:43
  Speaker 1: Again, that's investwithgibcom.
• 19:45
  Speaker 1: So let's talk a little bit about in the context of maybe like a build-to-rent community.
• 19:56
  Speaker 1: Let's say that you're doing ground-up development to rent community, maybe 200 units, 300 units.
• 20:02
  Speaker 1: When would be the best time to do the cost segregation study, I guess?
• 20:06
  Speaker 2: So depreciation only begins on a property once it's been placed in service.
• 20:11
  Speaker 2: So typically when you're acquiring a property, that's when the acquisition happens.
• 20:14
  Speaker 2: But when you're developing that only happens when the property is ready to be rented.
• 20:19
  Speaker 2: So the depreciation will only begin at the end of the construction period, when there's a CFO or whether it's ready to be rented out at that point.
• 20:29
  Speaker 2: So the cost seg is not going to benefit you during those first couple of years during construction.
• 20:33
  Speaker 2: We'll only be able to do it after the construction is finished.
• 20:37
  Speaker 1: So, yeah, the date that the asset is placed in service is really the first date that you could do a cost seg.
• 20:44
  Speaker 1: You couldn't do it prior to that, great, great.
• 20:46
  Speaker 1: So depreciation recapture Like, I've always been fascinated by that, and the reason I ask is I had acquired a bunch of properties in 2019 and 2020 and a couple in 2021.
• 20:59
  Speaker 1: And that's when I first learned of cost segregation and bonus depreciation.
• 21:04
  Speaker 1: So we did 16 cost segregation studies back in 2021.
• 21:08
  Speaker 1: And my tax return that year was like 2000 pages long or something because of all the cost segs attached to them.
• 21:14
  Speaker 1: What is depreciation recapture and how does it factor into this equation?
• 21:19
  Speaker 2: Yeah, so anytime you sell a property, you're going to be subject to this, what's called depreciation recapture tax, and it's similar to a capital gain tax.
• 21:28
  Speaker 2: In fact, it's called an unrealized gain.
• 21:30
  Speaker 2: Essentially, when you've taken depreciation deductions, that amount of depreciation taken is now going to be taxed.
• 21:36
  Speaker 2: Now there's a couple of things to note when we talk about recapture tax.
• 21:39
  Speaker 2: Taken is now going to be taxed.
• 21:40
  Speaker 2: Now, there's a couple of things to note when we talk about recapture tax.
• 21:41
  Speaker 2: First and foremost, a lot of people get this wrong is that they think recapture means what it sounds like Like I'm now paying back all that depreciation.
• 21:50
  Speaker 2: It's being recaptured, right, I take these deductions and now when I sell, I pay them back.
• 21:53
  Speaker 2: Right, that's wrong.
• 21:54
  Speaker 2: That's just not right at all.
• 21:56
  Speaker 2: What it means is, like I said, you're taxed on that amount.
• 22:00
  Speaker 2: So if you made money, you're going to be taxed on it.
• 22:02
  Speaker 2: If you took these deductions, you're going to be taxed on that amount.
• 22:05
  Speaker 2: Being subject to a tax is not the same as paying the tax, okay, and so legally, there are ways to either defer or have other deductions to offset that.
• 22:17
  Speaker 2: But even before we get to that, we have to understand that depreciation recapture tax is taxed at a lower rate than your ordinary income tax rate, which means there's always going to be an arbitrage like a difference between the tax rate that you would have paid had you not taken the cost seg and not taken those deductions during the years that you could have, versus what that tax.
• 22:43
  Speaker 2: That lower tax rate will be on the end if and when you sell a property and you're going to be subject to that recapture tax as well.
• 22:50
  Speaker 2: So that's, first and foremost, doing the cost seg is almost always going to be beneficial.
• 22:55
  Speaker 2: There are certain cases where, for example, if you're holding a property for a very short period of time, like a year or less than you know, less than two years maybe because one of the main benefits of cost seg is the time value of money, meaning the amount that I can use these deductions now during this time to reinvest right, to make more money with that money.
• 23:18
  Speaker 2: That's a big value of this, because you know, yeah, take the deductions now, but you'll be taxed on it later down the road if that later down the road happens, in a year from now.
• 23:28
  Speaker 2: So I haven't had enough time really to use those deductions, use that cash flow to reinvest and to make more money with it, and so, yes, it still may be beneficial, but it's going to be less so.
• 23:41
  Speaker 1: Yeah, that makes sense.
• 23:42
  Speaker 1: What is the applicable tax rate for depreciation recapture?
• 23:48
  Speaker 2: So there's actually three different rates that it's taxed at, and so it's not so straightforward.
• 23:52
  Speaker 2: But after all is said and done, even with those blended rates, it's always going to be less than what the ordinary income tax rate.
• 23:58
  Speaker 2: So a certain portion of the depreciation is going to be taxed at ordinary income tax rates, but another portion of it is going to be taxed at, capped out at 25%, based on the capital gain rate, and then even a third amount, which is specifically to the land improvement component, is also taxed at a blended rate between that, between the 25% and your ordinary income tax rate, whatever that lower value is.
• 24:24
  Speaker 2: So there is, like I said, there are three different rates that it's going to be taxed at, based on the different components that are pulled out from the cost-sink study.
• 24:31
  Speaker 2: However, it's always going to be lower than whatever your ordinary income tax rate would have been.
• 24:36
  Speaker 1: Yeah, yeah, I mean I think there's more benefit to doing the cost segregation.
• 24:41
  Speaker 1: Even you know most of the time there's more benefit unless you're going to hold it for a very short period of time, which you said.
• 24:48
  Speaker 1: You know you wouldn't do that, you wouldn't do a cost segregation study on the front end if you knew, hey, we're going to flip this house or something like that.
• 24:55
  Speaker 1: You know that would be a situation where you would not want to do a cost seg.
• 24:58
  Speaker 1: Talk to me a little bit about you know how this depreciation can be used in the active versus passive analysis.
• 25:07
  Speaker 1: You know, I think that's really important for the audience to understand.
• 25:11
  Speaker 1: You know, is the depreciation going to be active or passive and how can I use it to benefit me in my particular tax situation?
• 25:20
  Speaker 2: Yeah, probably the most important thing about depreciation is understanding how you can use it right.
• 25:26
  Speaker 2: And it doesn't, unfortunately, is not the same for everyone, because there's something called like, as you mentioned, active income or passive income, and the IRS treats real estate income as passive income.
• 25:38
  Speaker 2: Okay, so, even though it may not be, it may not be passive in your or my eyes, but the IRS treats it as such.
• 25:43
  Speaker 2: So any income that you're making from any rental properties is considered passive.
• 25:46
  Speaker 2: It's going to be your Schedule E, and depreciation and cost seg, which again is just a lot of depreciation, is generally only limited to offset passive Schedule E income.
• 25:58
  Speaker 2: And that's a big big thing to remember here, because a lot of people I've been asked um by many people have very high earning W2, you know earners and they're like yeah, I'm going to invest in real estate and you know, some guru on the internet told me that if I buy real estate I don't have to pay any taxes, right?
• 26:15
  Speaker 2: No, unfortunately that's not the case, because you're still going to have that limitation of only using the cost seg or these deductions to offset passive income and cannot be spilled over to your active, your W2 income.
• 26:28
  Speaker 2: There are, however, a couple exceptions to that rule the most pertinent one, I think, which a lot of people have, is what's called the real estate professional status.
• 26:39
  Speaker 2: And this real estate professional status says if you or your spouse so only one of you needs this status to qualify, either one of you spends the majority of your working hours during the year in the real estate trader business.
• 26:55
  Speaker 2: So that means you're buying, you're owning, operating, managing, investing, even brokering.
• 26:59
  Speaker 2: If you're a real estate broker, agent, realtor, you're buying, you're owning, operating, managing, investing, even brokering.
• 27:00
  Speaker 2: If you're a real estate broker, agent, realtor, you're automatically a real estate professional.
• 27:04
  Speaker 2: You also have to spend some time owning and self-managing or materially participating in those real estate properties in order to get the hours.
• 27:14
  Speaker 2: So the second requirement is the first one is you need to spend more than 50% of your working time during the year in the real estate business, which means if you have another W-2, it's basically impossible to also have this real estate professional status, unfortunately.
• 27:27
  Speaker 2: And the second requirement is it's a minimum of 750 hours a year.
• 27:33
  Speaker 2: Now that may not seem like a lot.
• 27:35
  Speaker 2: In fact it's really not.
• 27:36
  Speaker 2: It's about 15, 16 hours a week if you break it down on a yearly basis.
• 27:40
  Speaker 2: But it just means you can't just retire and not work at all and also claim this real estate professional status, or REPS as we like to use the acronym there.
• 27:49
  Speaker 2: So that's the most prominent thing.
• 27:52
  Speaker 2: And when you have the status, the depreciation is no longer considered passive, which means you can use those deductions to offset any source of income that you or your spouse have.
• 28:03
  Speaker 2: So this is a tool I've seen a lot of people use.
• 28:06
  Speaker 2: Get the cost sake done, bonus depreciation, get a huge, you know 100, $200,000 deduction, whatever, and you're only making you know 50,000 from your real estate.
• 28:14
  Speaker 2: The other 150,000 can then be used to offset your active income from other sources as well.
• 28:20
  Speaker 2: So that's the most prominent and, I think, most useful way to use the real estate professional status in doing a conservation study.
• 28:30
  Speaker 1: Yeah, no, that's extremely helpful when you're talking about short-term rentals.
• 28:36
  Speaker 1: I know that the rules are different when dealing with short-term rentals.
• 28:40
  Speaker 1: I don't know why it's that way.
• 28:42
  Speaker 1: I don't understand.
• 28:43
  Speaker 1: I remember hearing about this for the first time and being totally shocked, quite frankly, because I had heard of real estate professional status before, but I'd never heard that there was a different set of rules for short-term rental properties.
• 28:56
  Speaker 1: What are those rules that apply to short-term rentals?
• 29:00
  Speaker 2: That's right, gib.
• 29:01
  Speaker 2: It's pretty crazy.
• 29:02
  Speaker 2: But yeah, there's a completely separate amount of rules for real estate for short-term rentals and essentially what the rule says is that if you operate and self-manage a short-term rental which the IRS defines as the average stay being seven days or less, so a real hotel or Airbnb type property Then and you materially participate in that self-management.
• 29:25
  Speaker 2: There's a couple different qualifications for that.
• 29:28
  Speaker 2: The most, most you know, likely one that's used is 100 hours per year and more time than anyone else.
• 29:34
  Speaker 2: So you're self-managing spending a hundred hours a year which, believe it or not, is pretty doable, Even if you have another full-time job.
• 29:40
  Speaker 2: You can manage 100, especially in that first year of buying a property.
• 29:43
  Speaker 2: The time you know taking, acquiring it, setting it up etc is well over that 100-hour mark of the depreciation.
• 29:59
  Speaker 2: Become active, which means they're no longer limited, similar to the real estate professional status, no longer limited to just offset passive income.
• 30:02
  Speaker 2: You can use it against your W-2 or other active income and I've seen literally hundreds of people use this strategy to.
• 30:11
  Speaker 2: You know people that have or one in a couple maybe have a high paying job.
• 30:16
  Speaker 2: The other one goes into the short term rental space, gets a couple of properties does the cost seg and essentially they're not paying any taxes or making.
• 30:24
  Speaker 2: You know, I've seen several people retire you know two very high paying, high stress kind of doctors or lawyers, things like that where they're, you know, working 80 hours a week making a lot of money, but it's really just not working for them.
• 30:38
  Speaker 2: And so I've seen literally several people where one of a couple will retire right, the wife retired from her high paying seven figure job and decided to go into managing short-term rentals and they're making more after taxes by doing the cost seg and you're ending short-term with only one source of income as opposed to two, just because of these rules.
• 31:01
  Speaker 1: Yeah, I love that.
• 31:02
  Speaker 1: You know, I think people always say it doesn't matter how much you make, it matters how much you get to keep.
• 31:07
  Speaker 1: We do that with my wife and I.
• 31:09
  Speaker 1: So my wife is the real estate professional.
• 31:12
  Speaker 1: We have, you know, 15 properties that she manages and they're all self-managed and she, she deals with all the tenants, the termites, the toilets, you know she deals with all that fun stuff and, uh, in 2021, for example, it saved us 250 000 in federal taxes because, you know, she was real estate professional and we had, um, materially, we had materially participated in a short-term rental property that we bought.
• 31:40
  Speaker 1: It was actually in the Great Smoky Mountain National Park.
• 31:44
  Speaker 1: You know, we bought a six-bedroom, five-and-a-half-bath house up there.
• 31:49
  Speaker 1: With these acquisitions, we did all the cost segregation studies and basically almost completely eliminated my attorney income.
• 31:57
  Speaker 1: So, you know, I saw the power of cost segregation right there and it honestly was a game changer for me.
• 32:04
  Speaker 1: Ever since then, like, I've been totally obsessed with understanding tax laws understanding, you know, just on a basic level.
• 32:11
  Speaker 1: I don't need to understand it as much as you do, but I need to.
• 32:15
  Speaker 1: Um, but I definitely want to take advantage of this because the playbook is there and it's designed for us to use.
• 32:23
  Speaker 2: For sure, absolutely.
• 32:24
  Speaker 2: I mean, a lot of people think the tax code is out there to get you and it's just like you said, it's a playbook and it's a rule book and it has incentives in it because the government wants people to do certain activities and are incentivizing you with tax deductions to do those activities.
• 32:40
  Speaker 2: So it's really about you know and Rich Dad, poor Dad, you know, talks about this is using the you know the rules for your benefit and not.
• 32:47
  Speaker 2: You know the majority of the people are.
• 32:50
  Speaker 2: You know the ones that are just complaining about it and you know the silent minority, which are entrepreneurs and business owners, are really getting things done and using a tax code for their own benefit.
• 33:00
  Speaker 1: Yeah, you know, one thing I learned too, yona, is you know I'm an attorney and I've got, you know, a law practice, and that you know I'm an entrepreneur, but my business just happens to be my law practice.
• 33:12
  Speaker 1: And what I realized is those folks out there making $300,000, $400,000, $500,000 a year are just getting hammered on taxes.
• 33:22
  Speaker 1: You know, even probably worse off than the people that are, you know, making $1 million to $2 million, or $2 million to $5 million or higher.
• 33:33
  Speaker 1: And these opportunities are out there to reduce tax and make it worthwhile to work that hard.
• 33:41
  Speaker 1: Right, because we work really hard for our money.
• 33:43
  Speaker 1: It's a shame to turn around and pay it all in tax.
• 33:47
  Speaker 2: You know, a lot of people think you know it's patriotic to pay taxes.
• 33:51
  Speaker 2: But to be honest, it's more patriotic to use the tax code to pay less taxes and do what you know the government's incentivizing you to do, and I think it's just a change of mind, kind of a paradigm shift.
• 34:05
  Speaker 1: I agree with you wholeheartedly.
• 34:06
  Speaker 1: Just to transition a little bit, yona, I would love to talk just briefly about your podcast.
• 34:13
  Speaker 1: So you've got a podcast, weiss Advice, I think you told me before we went on that you've been doing it for about four years now.
• 34:20
  Speaker 1: You've released 410 episodes.
• 34:24
  Speaker 1: I mean you have a massively successful podcast.
• 34:26
  Speaker 1: I saw you had over 200 five-star reviews on the podcast.
• 34:31
  Speaker 1: Tell me, how has the podcasting platform helped you?
• 34:36
  Speaker 1: You know, in life and in business.
• 34:39
  Speaker 2: I love this venue, you know, just having candid conversations.
• 34:43
  Speaker 2: And, yes, there may be, you know, other, you know hundreds or thousands of other people listening in on this conversation, but to me it's given me an opportunity to become, you know, close with hundreds of people.
• 34:56
  Speaker 2: And the way it started for me was actually guesting on podcasts.
• 34:58
  Speaker 2: And, yes, I've been, you know, close with hundreds of people and the way it started for me was actually guesting on podcasts.
• 35:00
  Speaker 2: And, yes, I've been, you know, hosted my podcast, weiss Advice, for over four years now, but before that, for a couple of years before that, I was, you know, invited to be guests on many podcasts and at this point, over 500 podcasts have been a guest on.
• 35:13
  Speaker 2: And to me that was it was.
• 35:15
  Speaker 2: It was so much fun You're just doing that like almost on a weekly basis, just having these conversations and I developed really great relationships with all these podcasts.
• 35:25
  Speaker 2: So many turned into clients of mine and things like that, and we many met in person at conferences and things like that.
• 35:33
  Speaker 2: So it was really just a way to develop that relationship.
• 35:37
  Speaker 2: So there are a few benefits of the podcast.
• 35:39
  Speaker 2: The one and first and foremost for me is just that is creating, you know, kind of developing these relationships and, to be honest, 90% of the guests that I've had on Weiss Advice are actually clients of mine.
• 35:54
  Speaker 2: So, cost segregation, real estate, successful real estate investors, which I'm very grateful and blessed to have, you know such incredible people in my network, and so I invite them on to kind of further develop that relationship and learn from them, see what's gotten you know, help them to become so successful in their own right.
• 36:13
  Speaker 2: Another amazing benefit of it and to me, I see this more as a side benefit, but as a as someone who's very active on social media, as you know, it's always a challenge to come up with content, right, right, content is like what am I going to post about?
• 36:30
  Speaker 2: What am I going to talk about?
• 36:31
  Speaker 2: Well, when you have a podcast, you are essentially creating constantly new content and tons of content, because from one long form podcast you could, you know if you wanted to and Gary V, gary Vaynerchuk actually has a whole article you know approach of doing this, of literally taking like 80 pieces of content from one long form podcast, right, and so, yeah, there's a lot that you can get from that.
• 36:55
  Speaker 2: So for me, that's another added benefit to it is that you just have more.
• 36:58
  Speaker 2: You're creating content and creating value for other people by doing that.
• 37:02
  Speaker 1: I love that.
• 37:03
  Speaker 1: I think I read you know the branding information that you have on your podcast and how it talked about.
• 37:09
  Speaker 1: I love talking to successful people and learning how they did it and asking them questions, and I think that just makes for great content in and of itself.
• 37:18
  Speaker 1: I know that you have a huge presence on LinkedIn.
• 37:21
  Speaker 1: I love your content on LinkedIn.
• 37:24
  Speaker 1: You've been very active on LinkedIn for a long time.
• 37:26
  Speaker 1: You have about 29,000 followers just on that one platform.
• 37:31
  Speaker 1: How has LinkedIn helped you over the years?
• 37:35
  Speaker 2: It's literally been a game changer, like I mean, I'm not exaggerating when I say that from LinkedIn directly, I've been able to help bring over eight figures of revenue to our company, and so that's literally directly from LinkedIn.
• 37:51
  Speaker 2: And so people don't think of social media necessarily in that way.
• 37:54
  Speaker 2: But LinkedIn is a business platform.
• 37:57
  Speaker 2: Right, it's a business networking platform.
• 37:59
  Speaker 2: But first and foremost, if you are the, you know 1% or 1% of 1% that is actually posting on a daily basis and creating content, because the majority of people out there are not.
• 38:11
  Speaker 2: They're just watching, they're scrolling and they're looking, but they're not actively creating content.
• 38:16
  Speaker 2: If you do that not actively creating content If you do that, it is an unbelievable platform to create a brand and create this personal brand, a presence that establishes you as an expert in your field.
• 38:28
  Speaker 2: And when people come to LinkedIn, they're coming with a business mindset, they're coming right.
• 38:34
  Speaker 2: People go there, look for jobs, and it used to be that.
• 38:36
  Speaker 2: It used to be just about, you know, finding jobs and networking and all that stuff.
• 38:40
  Speaker 2: But about six, seven years ago, after Microsoft bought LinkedIn, it turned into a much more kind of social networking platform, similar to Facebook but with a much more kind of business presence around it and that's what really drew me into it.
• 38:56
  Speaker 2: And so, creating this brand, by continually posting educational, informative, valuable content, you're able to establish yourself as an expert and therefore, actually, another thing I took from Gary Vaynerchuk right, because I really love his approach in terms of marketing, in terms of business and sales, and one thing that he said that resonated with me early on, especially having a teaching background, was the best type of sales is to be an educator, right, and be an expert in your field and educate people on that, because when you establish yourself as that expert, then whenever someone needs that service, they're going to go to you because you're the expert.
• 39:38
  Speaker 2: Someone needs that service, they're going to go to you because you're the expert.
• 39:40
  Speaker 2: And so you, by establishing yourself as that expert and as that brand, you're just kind of creating that subliminal message in people's mind that by seeing you over and over and over and over and over, and every time you see people say synonymous, you know, they see my name, you know wise, that's synonymous to conservation.
• 39:54
  Speaker 2: Well, mission accomplished, right.
• 39:55
  Speaker 2: That's exactly the point, you know, and so that has been extremely valuable.
• 40:00
  Speaker 1: Yeah, yeah, you know it's funny.
• 40:02
  Speaker 1: You know, when I first started looking at social media and I started thinking about what platforms do I want to really spend my time and effort on, I really focused on everything but LinkedIn.
• 40:14
  Speaker 1: I was.
• 40:14
  Speaker 1: I just think, you know, I don't know what it was, but you know, instagram seems to be super popular right now and you know, you've got, you know, facebook, instagram, tiktok, youtube.
• 40:25
  Speaker 1: I spent a lot of time on all of those other platforms and I was at a conference, a real estate conference, and somebody asked me.
• 40:32
  Speaker 1: They said, well, how's that working for you?
• 40:34
  Speaker 1: And I said, well, I started saying, well, I've got really good video and audio quality and my content is very good and I'm sure it's going to take off.
• 40:44
  Speaker 1: It just hasn't done it yet, you know.
• 40:45
  Speaker 1: And the guy kind of said, well, how many leads are you getting?
• 40:49
  Speaker 1: And I, I admittedly had to be like, well, I'm really not getting any leads.
• 40:53
  Speaker 1: You know, I'm not not getting um, potential customers reaching out to me.
• 40:58
  Speaker 1: It's funny because now my main focus is LinkedIn and it really has been a game changer for me too.
• 41:03
  Speaker 1: I'm much earlier on in it because I kind of I mean, I haven't been doing it for nearly as long as you have.
• 41:09
  Speaker 1: But the community that you build through LinkedIn is phenomenal and those people really do become real relationships that you foster and you stay in touch with those people and it gives you a lot of opportunities that you I mean.
• 41:23
  Speaker 1: How, how often are you going to get an opportunity to speak to 29,000 people?
• 41:28
  Speaker 1: You know in any other, you know you're not probably not speaking at that many conferences that have that large of an audience, and so you've got their ear, you know, every day.
• 41:39
  Speaker 1: So, yona, for the listeners that want to get in touch with you, that would love to work with you in the future, what is the best way for them to reach out to you?
• 41:48
  Speaker 2: Well, the best way is on LinkedIn, if you're on that platform, but don't just hit that follow button.
• 41:53
  Speaker 2: I always urge people to you know, whether it's on LinkedIn or other platforms very active on Instagram and Twitter X, you know now as well.
• 42:01
  Speaker 2: Hit that little button that says connect and then type a little message right, take 10 seconds and say I heard you on the Go Big with Gid podcast and I just wanted to connect.
• 42:12
  Speaker 2: That's it.
• 42:12
  Speaker 2: It takes 10 seconds and it starts that conversation.
• 42:15
  Speaker 2: Because for me, it's not about, you know, the 29,000 followers.
• 42:18
  Speaker 2: It's about all those relationships and conversations that come out of that, and I can honestly say that, you know, at the very beginning it used to be with everyone, but at this point, you know, certainly well over half of the people that I'm connected with I've actually had some sort of dialogue with, and so it's to me.
• 42:36
  Speaker 2: You know, yes, there's a lot of time, there's a lot of effort that goes into that, but to me that's that's important, and so I spend the time because it's important to me.
• 42:44
  Speaker 2: So if you're listening to this and want to get in touch, that's definitely the best way.
• 42:47
  Speaker 2: You can also just go to my, and all my contact info is on my on that as well, or you can go to yonawisecom and check out more information about everything we're doing there.
• 42:57
  Speaker 1: That's fantastic, Una.
• 42:58
  Speaker 1: Look, I really appreciate you being on the podcast today.
• 43:01
  Speaker 1: It's been a pleasure to have you.
• 43:02
  Speaker 2: Thank you again, gib, it's been awesome.
• 43:08
  Speaker 1: Thank you for listening to this episode of Go Big with Gib.
• 43:11
  Speaker 1: If you haven't already, go follow us on social media at Gib Irons.
• 43:15
  Speaker 1: We'll see you next time.