Latest / The Hannah Hammond Show / He Saved A Client $4 Million Dollars with This IRS-Approved Tax Strategy - Jeff Hiatt

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He Saved A Client $4 Million Dollars with This IRS-Approved Tax Strategy - Jeff Hiatt · The Hannah Hammond Show

0:00
And we save them over $4 million of income tax and they're a tax
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advisor said this is incredible to save $4 million on this
0:08
transaction. You guys have to do a seminar
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for this. Cost segregation is our favorite
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thing as real estate investors and developers.
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It's how I have been able to not pay a lot of taxes for many
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years. And when you can recompound that
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wealth and grow your wealth and your assets quicker, it's a game
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changer. You paid a little bit of money
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and you got back four or five or 10 or 20 times.
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When I first I learned about it because I would read the tax
0:31
code to learn about tax strategy because I realized no one cared
0:34
as much about my money as I did. And when I brought it to my CPA,
0:37
they had no idea what it was. And that's how I was like, Oh my
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gosh, this is crazy. We did a seminar and we had 85
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Cpas come after that seminar from doing 5 or 10 projects a
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year to doing a couple of 100. One relationship can change
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everything. Welcome back to the Hannah
0:54
Hammond Show. I am sitting here today with
0:56
Jeff Hyatt with MSC Cost segregation.
1:00
And cost segregation is our favorite thing as real estate
1:03
investors and developers because it helps us reduce our tax
1:07
liability and therefore compound our wealth much quicker and
1:11
easier. And it's completely legal and
1:13
amazing and it's been insanely beneficial to me personally and
1:18
pretty much everybody I know because it's how I have been
1:22
able to not pay a lot of taxes for many years.
1:24
And when you can recompound that wealth and grow your wealth and
1:27
your assets quicker, it's a game changer.
1:29
Just pull out a compound calculator and look at what your
1:32
wealth would be if you weren't paying any or as many taxes.
1:37
So I'm excited to talk about cost segregation because I think
1:39
it's so important. And when I first learned about
1:43
it, 'cause I would read the tax code to learn about tax strategy
1:46
because I realized no one cared as much about my money as I did.
1:48
And when I brought it to my CPA, they had no idea what it was.
1:51
And that's how I was like, Oh my gosh, this is crazy.
1:54
So welcome to the show. Glad to be here.
1:57
Thank you so much. It's been great traveling with
1:59
you today all around the place. It's been so fun.
2:02
You're so cool. And then we know so many of the
2:04
same people too. And I mean you've been with your
2:08
company for a long time and you guys are like the biggest cost
2:11
segregation company in the country and.
2:13
Independent, independent, independent.
2:16
The big four accounting firms have bigger but right for
2:19
independent yes. OK.
2:20
And you guys have done over 26,000 studies.
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That's correct over. The past 30 plus years.
2:25
So we started doing this. The firm started in 96.
2:28
I was introduced to it through a young CPA that was moving to the
2:32
Boston area from Buffalo, NY. And he told me about it and he,
2:37
he's, he said, oh, Jeff, with what you're doing with your
2:39
business clients, you should hear about this thing called
2:41
cost segregation. And I said, oh, what's that?
2:44
And he goes, oh, it's accelerated depreciation.
2:47
And I said, no, that sounds boring.
2:50
And he said, oh, well, you should talk to your clients.
2:52
If they own property, they're going to be interested in this.
2:55
So I checked around and a couple of my clients at the time were
2:58
into, I'll call it franchise quick service restaurants, you
3:02
know, maybe a Domino's, Taco Bell, Dunkin' Donuts.
3:06
So we did some investigation with them and they said oh that
3:09
would be amazing to have faster write offs.
3:12
And I was like OK, well so we started doing a few projects
3:16
here and there. We were doing 5 or 10 projects a
3:18
year and then in O2 we ended up doing for a big defense
3:24
contractor that had sold the building in a sale leaseback.
3:27
We did a cost seg for that buyer and we save them over $4 million
3:32
of income tax and they're a tax advisor said this is incredible
3:38
to save $4 million on this transaction.
3:41
You guys have to do a seminar for this.
3:43
And I was like, in my head I went, oh gosh, that's going to
3:46
be terrible. And then but in my mouth I said,
3:50
I said, Oh well that sounds great, let's do it.
3:52
And I said, how would we do that?
3:54
And the guy goes, well, I'm on the board, I'll get you into the
3:57
big CPA society. And I said, OK, so we did a
4:01
seminar and we had 85 CPA S come.
4:04
And we went after that seminar from doing 5 or 10 projects a
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year to doing a couple of 100. Now at this point we do 15 to
4:12
1800 a year all over the country.
4:14
We now instead of it being an engineer, ACPA and myself back
4:19
in 99, it's become 27 qualified professionals and 10 or so
4:26
accountant types that boil down the site visit info from our
4:30
qualified professionals. The accountant types boil it
4:33
down into the various components that create the savings.
4:38
That's so wild. And that's what we were talking
4:39
about earlier is like one relationship can change
4:43
everything, going from 10 Cos egg studies a year to over 200.
4:47
And that doesn't really help your business.
4:49
It's helping 100 and now you're doing thousands of people's
4:53
incomes every single year and building freedom and lives of
4:56
freedom. So that's so, so cool.
4:58
And so I guess for those who may not know, what is the layman's
5:04
terms of a cost segregation study and how does it save
5:08
people taxes? That's perfect lead into to
5:11
where we need to kind of explain to people where this is all
5:15
about because some people have heard it.
5:16
They see stuff on the Internet and the and the jazzy guy
5:19
walking around the place going, oh, save money and all this.
5:22
Well, the the interesting part of it is if I ask the question
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to you, Hannah, would you if, if I give you the option, would you
5:30
rather take a deduction today or wait 27 1/2 or 39 years to take
5:36
that deduction today? Today, always.
5:38
Money's worth more today than it is in 30 years.
5:42
Correct. And if you can use that money
5:43
and do something positive with it, IE enhance your own
5:47
portfolio, your own wealth situation, as opposed to sending
5:51
it down to Washington DC, most people say, gosh, I would love
5:54
to do that. So let's say you, I ask you that
5:58
question and you go, well, I'd like to take a deduction today.
6:01
And I say, well, Hannah, you own some buildings or a building,
6:03
How about I do a study for you? Now you're going to have to pay
6:06
for the study, but it'll save you money.
6:08
Would that be of interest to you?
6:10
Yes. OK, so let's say we do that and
6:14
I'm going to tell you, OK, Hannah, it's going to cost you.
6:17
Well, that looks like a stack of money there probably that's,
6:19
let's say that's 8 grand. So you're going to pay me 8
6:22
grand to do a study for you and, and it's going to save you
6:25
money. It's going to enable you to
6:26
reduce your income taxes today and you'll be able to do
6:29
positive things with that money once you have it.
6:31
Would would that be a a good thing if the ROI sounds like
6:35
it's going to be good? Yeah.
6:37
How much do you think I would save with this $80,000
6:39
investment? Probably at least 50, sixty,
6:43
70,000. So you're going to get a nice
6:45
ROI there at least four or five to one on that at least.
6:50
So makes sense. Yeah.
6:52
And you could use it for actually at this point you could
6:54
use it for tax year 24 or if you don't need it for 24, you could
6:59
use it for 25. Sound good?
7:01
That sounds great. OK.
7:03
Well, let's Fast forward here, run The Time Machine and let's
7:06
see what happens when I come back to you.
7:09
Hey, thank you very much. I'm so glad to have this a
7:11
grant, Thank you. That will pay my team to get out
7:13
there. Well, look at this.
7:15
Fast forward the De Lorean Time Machine workforce, and so
7:19
there's our report, and that's all about your building and oh.
7:22
What is in here? Well, look at Tab 3 and there's
7:25
something in there for you. Well, and look at that stack of
7:28
money that you just have. So, so you paid this little
7:32
amount of money. Let's compare the side by side.
7:35
So you paid a little bit of money and you got back four or
7:39
five or 10 or 20 times. Yeah.
7:42
And where that ratio comes is basically as long as you've
7:46
spent under the current tax code at least 300,000 to buy a
7:51
building, build a building, or renovate a building.
7:53
So if you've spent 300K or more under the current 40% tax bonus
8:00
depreciation, it's going to make sense to do.
8:04
If the tax law changes go through that are being talked
8:06
about in DC at this point, that's going to push that number
8:10
down to maybe 200 or 250. So now it makes sense for you
8:14
financially. You spend a buck, you save 4 or
8:17
$5 in tax, people say, hey, let's go.
8:20
You can do this retroactively as well.
8:22
Because you've owned that property, you know you've owned
8:25
it for 5 or 7 or 10 or 15 years. This is going to make sense for
8:29
you to do. Yeah.
8:30
And that's what's so cool because when I learned about
8:32
cost segregation, I had already owned a handful of properties
8:36
and I didn't know about cost segregation before.
8:38
And so when I found out that it can be retroactive and it's
8:41
based off of when the property was put into service, So when I
8:44
had renovated them and rented them out and then any.
8:49
And because I'm a real estate professional, even if the money
8:52
wasn't made from the rental income, it was made in my real
8:55
estate business by selling real estate or doing loans, I could
8:59
take that depreciation and put it against, you know, use it as
9:03
a deduction against my own personal income.
9:04
So let's say after all my write offs and everything, I made
9:07
1,000,000 bucks. Well, I could go buy a, you
9:10
know, $4 million property and put a little bit of money down.
9:14
What would that be for 800,000 down and almost get that entire
9:18
amount of money written off against my personal income, wipe
9:21
out my taxes, and then have an asset that I invested in that I
9:24
could add value to as well. Bingo, Bingo.
9:26
That's what it's all about is, is being able to understand how
9:30
to, how the process works, what it's going to do for you.
9:33
And you know, you can do it as we were talking about
9:35
retroactively, or you can do it for a property that you just
9:38
bought. It can also help if you're,
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let's say your family owned a building in the in the town that
9:45
you grew up in and it's always been in the family.
9:47
Well, you're thinking, well, it's been in the family for 50
9:51
years. My family's always run that
9:53
business out of there. But what you forgot about was
9:57
that six years ago, generation one, let's say the founders of
10:01
the business passed on and handed you as the next
10:05
generation handed you the building.
10:08
Well, guess what? The depreciation clock just
10:10
reset for you and you get to do the cost seg just like you had
10:15
just bought it. But you didn't have to buy it.
10:17
It came to you in a step up when generation 1 passed it on to
10:21
generation 2 after a death. So even though the building's
10:25
been around a long time and it's been in your family for a while,
10:28
but upon you would get to take that deduction just as if you
10:32
bought it fresh. What if you already cost like
10:35
the property and then you passed away and then it your heir is
10:38
got it would they be able to re cost like it because the step
10:41
up? Correct.
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So that's that's actually a pro tip play that if let's say
10:45
generation one's getting up there and they know they want to
10:49
solve an estate tax problem. So maybe they have, they know
10:53
that their estate planning attorney and accountant and
10:56
advisors are telling them, hey, you've got a big tax problem
11:01
when generation one passes on. So what they can do?
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Maybe they don't have the money to buy a big life insurance
11:09
policy to get the tax liability wiped out with insurance company
11:15
money. Maybe they don't have that on
11:17
hand, but they pay a bunch of income tax.
11:19
Well, they could do a cost sag on the original building, grab
11:22
that deduction. They now have that money in
11:25
hand. They could go buy potentially a
11:27
single premium life insurance, insurance policy that would
11:30
solve that tax problem for them. And so, OK, let's Fast forward 5
11:36
or 7 or whatever number of years generation one passes on that
11:40
insurance policy, pays off, wipes out their estate tax
11:43
problem, but that property now goes to generation 2.
11:48
All of that recapture that might have been in place if Generation
11:52
1 sold the building because they passed on, they get the family
11:57
member. Generation 2 gets that stepped
12:00
up basis without regard to the prior depreciation that's
12:03
already been taken. They get a clean slate at
12:06
current market value as of date of death.
12:08
That's amazing. It's a great it's a great tool
12:12
that good advisors will bring up to their clients.
12:16
And so if somebody buys a building, let's let's assume
12:21
it's back to 100% depreciation just for easy numbers, and then
12:24
we can explain what's going on in the politics and stuff right
12:26
now. So let's say somebody buys a
12:28
building for $1,000,000. What could they anticipate that
12:32
they would be able to depreciate from that building if they did a
12:36
cost segregation study in year 1?
12:38
OK, great question. So the way it works and I'll
12:41
take you through it because a lot of people that are out there
12:43
on the Internet, you know, flooding, you know, paying for
12:46
all those ads and all that stuff, they kind of skip over
12:49
some of the details. And with our background of
12:52
coming out with we've got so many Cpas on our team, we don't
12:57
mess around skipping over details.
12:59
So the way it would work, your 100, your $1,000,000 purchase
13:02
price, let's say the municipality says land is valued
13:08
at 20%, OK land, meaning the dirt is non depreciable.
13:12
OK, so you paid 1,000,000 bucks for the property.
13:15
We've got a sub out land, land, 20 percent, 200 grand.
13:19
So 200 grand is the land value. We can't do anything with that.
13:23
But now you have 800 grand as the depreciable basis in your
13:27
building. OK, So that's what you're going
13:29
to write off over 27 1/2 year if it's residential rental, in
13:33
other words apartments or 39 year if it's anything else.
13:38
So if it's hotel, retail, office building, lab space,
13:42
manufacturing, anything out there other than residential
13:46
rental is 39 year life. OK.
13:49
So 800 grand over I'll say 39 year life for now, but we do a
13:54
cost sag and so we come in and we identify that the IRS tax
13:59
code will allow you to accelerate somewhere between 15
14:04
and call it 30% in a faster life.
14:09
Now what that means is we're going to identify the assets
14:12
that can go into a five year and a 15 year life.
14:16
So we're going to identify those and let's say those come to 20%.
14:20
So I kind of in the middle there of 15 and 30, let's say it's
14:24
20%. So now you get to accelerate and
14:28
grab 140 grand out of that, excuse me, 160 grand of
14:36
depreciation right now with 100% bonus.
14:40
That 160 grand is coming off of your tax liability calculation.
14:46
So you've got the $1,000,000 property, 200 out for land,
14:52
you're going to accelerate 160K and that means you get to use
14:55
that 160 K against your taxable income.
14:59
So if you had 200,000 of taxable income, instead of paying tax on
15:04
200 grand of NOI as it would be called, you're subbing off 160
15:08
grand right off the bat. And so now you will only pay tax
15:12
on 40 grand of NOI, if that makes sense.
15:16
Yeah, it's it's amazing, it's incredible.
15:19
I hope everybody if you got to rewatch it, rewatch it.
15:21
But basically, it just cuts, cuts your tax liability down so
15:25
much. And if you are a real estate
15:28
professional or your spouse is a real estate professional,
15:31
someone in your household is a real estate professional, you
15:33
can take that depreciation, that tax savings against your normal
15:38
income, even if it's not earned from that property or from real
15:41
estate, if you have that classification.
15:43
And if you don't have that classification and you do, you
15:45
are a professional. And nobody in your household is
15:47
considered a real estate professional.
15:49
You're just a working professional or a doctor or an
15:51
engineer or whatever you are. What is a strategy that they can
15:53
use to still get more benefits out of the cost segregation?
15:57
So there's a couple of things there.
15:58
If they own multiple properties, we might do a cost like on one
16:03
of their properties, but the, the accelerated depreciation not
16:07
only would go against the property we did the cost like
16:10
for, but they own four other buildings.
16:12
And maybe you as their advisor, you as their loan person would
16:15
know, oh, they've got this whole portfolio over there.
16:17
They could do a cost like on the newest building, but it's going
16:20
to offset income from those other properties.
16:23
That's kind of scenario one. Scenario 2 might be that you're
16:28
trying to help them and, and they really don't like paying
16:30
the tax and, and they want to do something to get into real
16:33
estate and how can they best do that?
16:35
Well, they might like to use the short term rental opportunities
16:39
that are present. So some people call it a
16:42
loophole, but it's really not a loophole.
16:44
It's the way the tax code is written.
16:46
And if you're short term rental, you can, because you're going to
16:49
be actively involved in that process.
16:52
It, you get to treat it as just like you own a hotel and you're
16:55
actively involved in that hotel management.
16:58
Well, you're actively involved in that short term rental
17:01
property. So you're deciding, you know,
17:03
you, you maybe you're doing some of the work, maybe you're doing
17:06
the lawn maintenance or the property maintenance or the
17:09
taking out the trash or the changeovers, or maybe you're
17:12
just helping find the properties.
17:14
You're helping set the right rate and the terms and you're
17:18
actively somehow involved in it. You get to use the losses
17:22
created against your W2 and 1099 income as well then if you're in
17:27
that space of the short term rental.
17:29
Yeah, and that's an amazing option that I see a ton of my
17:33
clients do they just buy some Airbnb properties and they
17:37
actually are able to get the classification because it's a
17:40
big, much bigger benefit if you are a real estate professional.
17:43
But there's that doesn't mean you can't have another source of
17:46
income or you can't be working a job or be a contractor or
17:48
whatever. There's ways to get that that
17:50
classification and what so right now cost segregation over the
17:56
past few years has been phasing out.
17:58
So you know now this year we're at 40% of the depreciation.
18:02
So in that example where it was a $200,000 write off today, if
18:07
you were to do that report, you would only get 40% of that.
18:10
Immediately. You still get the rest of it, it
18:13
just won't be immediate. Right, it's over the 39 years or
18:16
whatever. No.
18:17
So the way that would work, you get the 40% the first year of
18:21
purchase, OK. The 60% is going to come into
18:25
you over five years and 15 years.
18:28
So you're still getting the the total amount, you just don't get
18:32
it the very first year. And if you don't mind, I'll give
18:34
you a little history. So you can kind of see the, the
18:36
whole waterfront versus where we are now.
18:39
And, and it doesn't sound as good, but the reality is since
18:43
from 96 to 2017, so for 21 years, bonus depreciation never
18:51
ever applied to existing building purchases.
18:55
Bonus only applied. And that bonus applied after 911
18:59
O1 for new construction. And that was an incentive to get
19:05
the real estate market moving again that the Congress put in
19:08
place. And they said any new
19:10
construction project after 911 O1 will get 30% bonus.
19:14
And that didn't seem to be moving quick enough.
19:16
So they moved it to 50% bonus and that was around for a while.
19:20
And then it bounced around and it got to 100% at a certain
19:23
point and then it backed down again.
19:25
But the bottom line was from 96 to 17 bonus never would apply to
19:31
an existing building, only new construction.
19:34
During that span of time we did about 15,000 studies.
19:38
So we did a lot of work with people doing cost seg just to
19:42
pull five year and 15 year out of 39 or 27 1/2 because in and
19:47
of itself that is powerful OK to to just get that 5 and 15 year
19:53
out of 39. Well, in 2017, the
19:58
administration at that time decided to incentivize real
20:01
estate. He might have even been a real
20:03
estate person himself. I don't know.
20:04
I've heard that, but I'm not sure if that's true or not.
20:06
But the new administration said, hey, wait a minute, Hannah,
20:10
wouldn't you rather take that deduction now completely 100% of
20:16
five year and 15 year in the first year you buy the property
20:20
and you'd say, yeah, let's go, well, that's what bonus became.
20:25
So for existing buildings and construction, just like before,
20:28
you got to take 100% of the five year and 15 year stuff, OK.
20:34
But when they put that law in, they couldn't just leave it
20:38
there because that could be a big tax impact nationally to the
20:41
debt and all that stuff. So they can't just plug that in
20:44
and say, OK, it is the way it is forever now.
20:47
They had to build in a sunset provision, and that sunset
20:50
provision started at the end of 22 into 23.
20:55
The first stair step down was to 80%.
20:58
So if you bought, built, or improved a building in 23,
21:01
instead of 100% bonus, it was 80% bonus.
21:06
OK. And then in 24 it stepped down
21:08
again to 60% bonus. And in 25, we sit here at 40%
21:13
bonus and in 26 it'll be 20% bonus.
21:18
And then in theoretically in 27, it'll sunset completely and
21:22
there won't be bonus. Now with the new administration
21:27
and the one big beautiful bill scenario that's been approved
21:30
already by the House, it will bring back bonus depreciation to
21:35
100%. As it sits as we speak, that
21:39
will be retroactive to 120 of 25.
21:43
So if you've bought, built, or built a building since 1:20 of
21:47
25 in service, then you'll get 100% bonus on that.
21:51
I'm afraid I'm getting too deep and if there was a chart here we
21:56
could. Yeah, I mean, I'm for, I
21:59
understand that because I do it, but it's it makes sense and
22:02
people can research too and start to dive into it.
22:04
But that's the first thing is the awareness, right?
22:06
And I got a call from a cost tag person.
22:09
I think it was probably in 2017. I didn't realize it wasn't
22:12
around before then because that's when I started doing it.
22:14
And because I'm a commercial, I, you know, commercial real estate
22:18
brokerage. And so people were calling
22:20
brokers and say, hey, your clients should be doing this.
22:22
So I was like, what is this that you're telling me about?
22:24
And yeah, it's a, it's been a beautiful, beautiful thing.
22:27
And it's helped me build wealth that I wouldn't have been able
22:30
to build without it because I would have to, you know?
22:32
Just do a deadlift. Yeah, which is a lot harder.
22:35
So it's nice to just not give as much money away as you you don't
22:40
have to. Right.
22:40
The tax laws let you do that. Yeah.
22:42
Why would you not take advantage of that?
22:44
Yeah, no, it it's pretty amazing.
22:46
And and so now the question is what are the strategies?
22:49
Because there's something called recapture.
22:51
Now if you do a cost egg and you invest the the money, it's going
22:55
to be different varying on the property and the size and all
22:57
that stuff. But you invest the money for the
22:59
cost segregation study. But then if you want to sell
23:02
that property, like what are some of the risks that the
23:04
people have to be aware of if they do go sell that property
23:06
that they accelerated depreciation?
23:08
And what are some ways that they can prevent that from happening
23:10
and continue to kick the can down the road per se and not
23:14
ever have to have the recapture? Well, the, the kick the can down
23:17
the road is the classic 1031, either prior statement to 1031
23:22
or after statement after you said 1031, you're kicking the
23:25
can down the road on the tax on the gain.
23:27
Well within that same capability that the 1031 has, it also
23:32
enables you to kick the can down the road on any recapture.
23:36
Recapture is basically in the tax code provision that says if
23:41
you've taken depreciation, when you're figuring out the gain on
23:45
sale, you have to give back or count that depreciation you've
23:49
already taken back. And with the cost second hand,
23:52
you're going to have a little bit more depreciation to add
23:55
back in. So I would say to you, Hannah,
23:58
if you know going into this conversation, if you said, I'm
24:01
buying this building, we're going to own it a couple years.
24:03
We're going to do some fix UPS on it and then we're going to
24:06
sell it in two years. And I hate 1030 ones.
24:09
Let's say you got burned on them a few years ago.
24:12
Somehow you weren't able to identify a property quickly
24:14
enough. And for whatever reason,
24:16
philosophically, you hate 1030 ones and you say I'm not doing a
24:19
10/31. I would say to you, it's
24:21
probably not worth doing because if you're only going to hold the
24:24
property a year or two and you're going to then sell it and
24:28
you're not going to do a 1031, then probably the money that you
24:32
save, that, you know, you paid me to do this study and that
24:36
money you're going to save, you're going to have to give
24:37
back most of it in that short amount of time, OK, because of
24:41
recapture. But if you said, yeah, I'd
24:43
consider 1031 and I'll plan and make sure that I have a 10/31
24:48
properties lined up for me to move into and so life is good,
24:51
then I would say absolutely do it.
24:54
Once you get to a three-year hold with or without 1031, you
24:59
start to get into the point where some of that recapture
25:02
byte is not going to be as bad. In other words, it's the delta
25:05
that you've taken early, but you have to give some of that back.
25:10
Well, by the time you're into owning it for three years, four
25:12
years, five years, that number of the give back will be less.
25:16
Or because you've taken some of it early and you've held it long
25:20
enough, but in a short, short term hold, you can do that 1031
25:24
thing. So that's a really good tool
25:27
that most people can get their arms around.
25:29
You just have to set the 1031 up ahead of time.
25:33
And that's not our space. But we know lots of people in
25:36
that space. I'm sure you do.
25:37
I'm sure other folks, you know, know people in the 1031 space.
25:41
Yeah. But when you do the 1031, I'm my
25:45
we've been up since 3:00. So I've started to run on fuse.
25:48
Well, you do the 1031, you you buy an asset, you cost like it
25:52
And then let's say in five years you want a 10/31.
25:54
Do you you still have a recapture but then you re cost
25:57
like the 1031 or you have no? Recapture.
25:59
The recapture pushes out and you don't have to worry about that
26:03
on the original property. And then when you buy the new
26:06
property, assuming there's higher basis in the new
26:09
property. So if you if you're bringing
26:11
forward let's say $1,000,000 of gain and you buy a property for
26:15
a 1.1 million, let's say your new depreciable basis in that
26:21
property you're buying is only 100 grand.
26:23
It's not going to be exciting to do a cost sag on that $100,000
26:29
new basis. So you're just kind of rolling
26:31
it into the. Well, where where I'm going with
26:34
that. But yes, you're rolling the gain
26:35
into the new property. But let's say you've leveraged
26:39
it because you're a smart real estate investor and you're not
26:42
just going to swap evenly. You're going to say, oh, I'm
26:45
putting a million down on this new building that I'm buying and
26:48
I'm buying a $4 million building.
26:50
What? Your new depreciable basis is 3
26:52
mil. You paid 4.
26:54
You had $1,000,000 of gain coming in in the 1031.
26:57
So you've got 3,000,000 new money in the game in that new
27:01
property. So you would do a cost sag and
27:04
that depreciable basis that we would be working on would be 3
27:07
mil. OK, So that's like a really good
27:10
scenario there. But if you were just swapping
27:14
evenly, you're you're putting in a mill and you're only buying a
27:17
slightly higher value building, it's not going to look too good
27:22
on the second building. It still works on the first
27:24
building very nicely, but it's on that second project.
27:27
Yeah, because you, you basically already depreciated everything.
27:32
On the 1st on. The first one, yeah.
27:33
And you're not recapturing it because you're moving it to the
27:36
next building, but you're not buying a bigger building.
27:38
So there's not much more to depreciate.
27:39
For that first scenario of paying 1.1 mil.
27:43
But you're right. But if we can all just make more
27:46
money every year, buy bigger assets, keep rolling them into
27:48
bigger ones, and then we're fine.
27:50
Yeah. And we have clients that do that
27:52
all the time with, you know, having done this for so long.
27:55
We've got clients that buy and sell hotels.
27:57
They'll buy a hotel, put it in service, they'll use it for a
28:00
few years. They get an offer, oh wow, look
28:02
at that. I can get an extra 1,000,000 or
28:04
2 million and roll that into the next bigger property.
28:07
And you just kind of keep cycling that and you can build
28:10
your your wealth up. Very nice, nicely.
28:12
Yeah, it's awesome. And for those of you out there
28:15
who are, you know, maybe you are a full time employee of some
28:18
sort or you don't want to go out and be in the business of real
28:21
estate, you can also invest in a fund like, you know, Arthur's in
28:26
your space, America's Swords Development Funds, and they will
28:30
accelerate the depreciation and pass the K1 losses off to their
28:33
investors. So it's a way to still take
28:35
advantage of these strategies without having to go buy and
28:39
develop and do all these crazy real estate deals if you aren't
28:42
in the business of real estate. Right, right.
28:45
It works out really well. And what we find is that within
28:48
the industry, there's an an overarching group called the
28:52
ASCSP, which is the American Society of Cost Segregation
28:56
Professionals. And it's the group that makes
28:59
sure that the members of that are following the tax code and
29:03
they're not going off the into the dark areas of the tax code
29:08
or completely not following the tax code.
29:12
And that in that industry group for us finds or estimates that
29:18
only 30% of the people doing real estate transactions that
29:22
could take advantage of cost SAG do it only 30%.
29:26
Meaning 70% of people don't hear about it from their attorney,
29:30
their real estate agent, their real estate broker or their
29:33
accountant. And those folks need to hear
29:36
from people like you that on this podcast that this is out
29:41
there for them and they can grab this.
29:43
It's not a Gray area of the tax tax code.
29:46
What is? You just want to make sure
29:49
you're doing it with the right type of professional
29:52
organization. Because the IRS tax code says
29:55
for a quality cost seg to be admitted, you have to have it
29:59
done by qualified professionals. You can't do a remote site
30:04
visit. The IRS specifically says you
30:06
can't do a remote site visit, you can't do a virtual site
30:10
visit. They can't call you up and say,
30:11
hey Hannah, let's do a FaceTime and you can just walk around the
30:15
building with your camera on your phone and and show us the
30:19
the things we need to see. Can't do that.
30:22
Yeah. And now I'm worried because my,
30:24
that's what my cost tech company does.
30:25
So now I'm going to work with you 100%.
30:27
And they they had me do a FaceTime on my last study.
30:31
It's funny because it's gotten out there that remote and
30:35
virtual are not allowed. So I've seen the most recent
30:38
iteration of because I read a lot of these contracts because
30:42
my clients I normally get from the CPA firms out there.
30:45
So I get these clients that kind of want to use me, but they're
30:49
saying, Jeff, we've got this proposal from this other guy and
30:52
he's maybe 1000 or 2000 bucks less than you.
30:55
Oh my gosh, what can you do? And I and I look at the contract
30:58
and I say, let me make sure it's apples to apples.
31:00
And they say, well, this one isn't remote, it's not virtual.
31:05
But then I read it and it says the latest iteration.
31:09
I'm laughing heartily at this says non physical site visit.
31:14
OK, So what is a non physical site visit?
31:17
Well, that is a remote site visit.
31:20
And they say they're going to schedule it for somebody to
31:23
remotely or non physically do the site visit.
31:26
And I'm just like, there you go. You're not going to win if it's
31:30
ever challenged. And that's a problem.
31:33
And what about obviously there's their online like pay 500 bucks
31:37
or 1000 bucks or whatever for a cost like study.
31:39
You definitely don't want to do that.
31:40
I know people that do that. And then also because who you
31:44
work with is going to change the amount of money that you can
31:46
depreciate because you really have to know what materials were
31:49
put into the property and what fully you can appreciate.
31:52
And if you're just being lazy about it or doing a general
31:55
blanket cost egg, you're not going to get the most value out
31:57
of that investment or out of the tax savings.
32:00
So that was a big one you shared with me earlier today.
32:03
And then what about different asset classes?
32:05
Because I hadn't considered this before and then Arthur brought
32:07
it up in our podcast is that, you know, storage can possibly
32:11
have higher ability to cost segregate more bonus, depreciate
32:15
more than maybe some other asset classes.
32:18
So what have you seen among the asset classes on 'cause you, you
32:21
gave a pretty big range, 15 to 30%.
32:23
That's a big range. We're always gonna want to
32:25
target the 30%. Everybody wants yeah, yeah,
32:27
Everybody wants 30%. Yeah.
32:29
Well, the scenario is it can be anything.
32:31
So it could be hotels, hotels, depending on the flag that is
32:35
flying out in front of the hotel.
32:37
You know, if it's a big brand name, like a big international
32:39
brand name, they might have nicer stuff in there than maybe
32:43
a, a, a lower end flag, you know, so you might have a big
32:50
determinant is what is inside of the physical building and then
32:54
what is outside of the physical building.
32:56
So if you think about it, anything outside of the physical
32:59
building is going to be the 15 year category.
33:03
So that means the parking lot, the driveway, the curbs, the
33:08
planting beds, the irrigation systems, the retaining ponds.
33:13
It might have, you know, a, a walking bridge to get over a
33:17
water element. You know, it could be a golf
33:20
course, you know, might have a lot of these things.
33:23
And if it's all designed right, then these will give great
33:28
results for the client. It could be apartments, office,
33:34
any kind of medical facility, so any of these.
33:37
So one of the categories to think about, and the big
33:41
determinant on that 15 to 30% is if it's an urban setting.
33:46
Imagine a hotel that's plopped down in the middle of you name
33:50
the city block, but it's basically the building, the
33:54
hotel on the city block and their sidewalk around it.
33:58
Is there any real parking? Probably not.
34:00
Are there any walking trails? Probably not.
34:02
Any significant irrigation systems outside?
34:05
No, probably not. No play areas, no tennis courts,
34:08
no basketball courts, no outside swimming pool?
34:11
OK. Well, there went, You're not
34:12
going to get much out of 15 on that hotel or office building or
34:17
apartment building in the downtown center of city.
34:20
Whereas if you step out five miles, 10 miles, 20 miles,
34:24
whatever the radius is and now you've got a big parking lot and
34:28
you've got maybe a kayak pond or a a place that you can get on
34:33
the river. So all of these things outside
34:36
of the building are going to add to the 15 year category and
34:39
that's going to give you a push you into that 20 to 30% range
34:43
versus the the 15 to 20% range if that makes sense.
34:49
Cool. Yeah, No, I love it.
34:50
If anybody is not doing cost segregation, start doing them.
34:54
And how can people get a hold of you?
34:56
Because you're the best. Why thank you very much.
34:57
I'm sure the the information will be in the link out of this,
35:01
but if they wanted to get in touch with me it would be great.
35:05
JDH it cost seg studies. If you want my e-mail address
35:09
there, it'll be, I'm sure it'll be in the link, and that's my
35:14
e-mail address. Of course, my mobile phone, if
35:16
you want that, is 508-878-4846. If you want that in there,
35:20
perfect. But yeah, and it's up to you,
35:23
yeah. Yeah, yeah, like like Arthur
35:25
said, you know, I don't mind getting the calls whenever I get
35:27
them, so text, whatever it is, yeah.
35:30
Oh, and on Instagram, I'm depreciation Dr. and that kind
35:35
of came around and so I have a a big dog that is my depreciation
35:41
spokesdog and his name is Thor. And going back to Roman times,
35:46
back in the day, what we call Thursday used to be Thors day.
35:49
And you know, in English, it's become Thursday.
35:52
Well, every Thursday for me is Thor's day.
35:55
And I post a video of Thor or some of his cousins, which are
36:00
big German shepherds doing fun stuff to find tax deductions for
36:03
their clients. And so it's kind of a fun little
36:06
thing. And then it it's a, it's a good
36:09
way to get some content out there for me.
36:12
That's awesome. I love the idea and the
36:14
creativity. I know you had the creativity
36:16
with it. This too SO.
36:17
Well, you know, walking around with stacks of money.
36:19
I know that's. All everybody wants.
36:22
That's what it's all about. Well, thank you for having me on
36:24
today and thanks for hanging out and going around all over the
36:28
the Southwest here in in the past day now so.
36:31
It's been great. It's awesome.
36:32
Thank you so much for flying out from Florida and, and everything
36:36
that you're doing in the, in your veteran support.
36:40
You have an event coming up if you want to share that website
36:42
too. He's very involved with veterans
36:45
and you could share that real quick.
36:48
What we do, because my way of giving, coming back to the folks
36:52
that have actually protected the way that you do business, the
36:55
way I do business, if we didn't have the veterans of our
36:59
country, and that's typically about 1% of the population
37:02
actually protects all of the other 99% of us.
37:06
If we didn't have them protecting us, we wouldn't be
37:08
able to live our lifestyle. And so my way of thanking them,
37:13
I never served myself, but my way of thanking them is to help
37:17
raise money for veterans and their families.
37:19
And so I've been involved in a group out of the Northern New
37:23
England area called Swim with the Mission or swam.org.
37:27
And in that time, since 17, we've raised 11 and a half
37:30
million dollars. We've given away hundreds of
37:33
dogs for service dogs and support dogs.
37:36
We've done on homelessness resolution for people, getting
37:40
them into housing. We've done equine immersion, art
37:43
therapy, all kinds of different modalities to help the lives of
37:49
veterans and their families. And so we've got a big event
37:52
coming up in early July, and if anybody's interested in that,
37:57
swam.org, it's a great group. We do a lot of fundraising for
38:01
Navy Seals and their families especially.
38:04
And so I'm also involved with the Navy SEAL Museum down in
38:07
Fort Pierce, FL. If anybody wants to see the most
38:09
awesome military focused museum, Fort Pierce, FL Navy SEAL Museum
38:15
a.org is a great group to check out too.
38:19
Perfect. And your next event's July 11th.
38:21
July 11th is our big paintball competition.
38:26
We've got about 30 teams that are going to show up and they'll
38:29
all be there and they'll each be assigned a Navy SEAL.
38:33
So each team will get one Navy SEAL that they've heard about
38:36
out and learn from early in the morning, and then that SEAL will
38:39
lead them for the rest of the day in a paintball competition
38:42
against the other teams, the other 30 teams that will be
38:45
there. Interestingly enough, we have
38:47
the largest fundraiser using paintball as its promotion.
38:52
We beat out William Shatner and Will Smith, who used to hold
38:56
those records, but we've beat them out and that's out of
38:59
northern New England, in other words, New Hampshire.
39:01
So it's a lot of fun and it's it's just incredibly cool and
39:04
you meet a lot of really cool Navy Seals.
39:06
No, guys, it's a lot of fun. Well, thank you for all your
39:09
support in that and and for all the money that you save all of
39:12
us. So we appreciate you and look
39:14
forward to getting to know you more.
39:15
Good deal all. Right.
39:16
That's great. Thanks.
39:16
SO. Much thanks for coming on the
39:17
show.