All Forum Posts by: Bernard Reisz

@Michael Plaks Always an honor to be mentioned by a true real estate tax pro!

@Catherine Javier Easiest path to making choices about Cost Seg is obtaining a free cost feasibility analysis. When reviewing your Cost Seg feasibility analysis, you want to be bear in mind all the considerations Michael discusses in the superb post he shared. Love that post so much, that we added it to our educational site. 

@Michael Plaks Honored to me mentioned by you, in such esteemed company! @Eric Lowe Prior to pulling the trigger on a Cost Seg study, you should evaluate 2 things:

1 - How much net additional deprecation tax deductions a Cost Seg study would provide: Best way to get this is by requesting a free feasibility analysis from a Cost Seg provider. The preliminary analysis can have lots of data, so it's important that the provider thoroughly review it with you to explain what depreciation tax deductions Cost Seg study provides and what depreciation benefit you would get w/o Cost Seg. Michael Plaks has a great post on this topic.

2 - Assess the value of those tax deductions to you: Best way to get that is by working with a real estate tax expert. Second best way is to review Michael Plaks' post on this subject. 

If all else fails, 😀 ReSure's got extensive resources on all these subjects in our educational platform (which actually includes some plagiarizing from Michael!😉)   

@Michael Plaks Great list! ;) @Danny Arnold There's lots of good stuff on this thread. For more focused and authoritative discussion, check out BP content created by Michael Plaks. Love his content so much that I've plagiarized it in our investor education platform! 

@Michael Plaks Honored to be short-listed by you, along with esteemed industry colleagues. Thanks! @Evan DiLeonardi While I'd love to tag some great resources we've created on the topic of cost seg, and they're extensive, my favorite BP content about Cost Seg was actually created by Michael Plaks. Liked it so much that we've added it to ReSure's Cost Seg blog! 

@Logan M. We do Cost Seg studies on properties of every size and always provide a free preliminary analysis to help you make an informed decision. 

Can't emphasize enough how important it is to have a great tax accountant in your corner, which this thread has probably illustrated, as well. @Michael Plaks has created invaluable eye-opening content on BP, but still not a substitute to actually working with true real estate tax pro.

@Michael Plaks Honored by the mention! There are 2 parts to pursuing Cost Seg, one is the actual cost seg study and the other, at least equally important, is the tax expertise needed to determine how a cost seg study impacts the tax return. For anyone, looking for a guide to the latter, I'm not aware of any better resources than those prepared by Michael.

@Michael Plaks Honored by the tag, as always. @Joel Adams Definitely a questionable transaction for the IRA, at best.

@Michael Plaks Honored by the mention and to be mentioned is such great company! 

As I always do, will mention that any investor considering cost seg should review Michael's superb posts on the topic for unparalleled insight. 

@Michael Plaks Didn't either get any nickels for saying this, but it's still the reason I retired (from real estate CPA services)!

@Michael Plaks Honored, as always, to be short-listed in such great company!

@Mike Zamolo Michael Plaks' comprehensive posts on this topic (and every other real estate tax topic) are truly required reading. I confess to using content from his posts to enhance my own.

As you explore Cost Seg, the following should be helpful to you.

How to interpret a Cost Seg Feasibility Study and Cost Seg Report

A Cost Segregation Feasibility analysis can be a pretty "noisy" document, so you need to know how to cut through the noisiness to focus on what actually matters.

Your actual ROI on a Cost Seg Study may be HIGHER or LOWER than illustrated on a Cost Seg report.

What is the "bottom line" on a Cost Seg report? 🤷‍♀️

Typically, a Cost Seg report provides either an estimated "net tax benefit" or "net financial benefit" number.

▶️ Net Tax Benefit = (Additional Deprecation Deductions Generated by Cost Seg - Depreciation Deductions w/o Cost Seg) x Marginal Tax Rate

▶️ Net Financial Benefit = Net Tax Benefit x Time Value of Money

Why does the bottom line NOT count? 🤷‍♀️

The actual tax and financial benefit you get from doing a Cost Seg depends on a number of factors that are outside the scope of cost seg cost allocation and asset classification:

👉 What portion of the purchase price gets allocated to land? (IRS actually says that this is a key component of a Cost Seg study!)

👉 What portion of the acquisition costs are allocated to improvement basis (as opposed to being currently deductible or are amortizable finance costs)?

👉 What's your marginal federal income tax rate?

👉 What's the applicable state income tax rate?

👉 Does the applicable state conform to Federal Bonus Depreciation rules?

👉 What is the time-value of money to you?

👉 What additional tax and financial incentives might you qualify for by reducing your taxable income?

The bottom-line tax or financial benefit reported on a Cost Seg feasibility analysis necessarily incorporates ASSUMPTIONS regarding all the foregoing.

However, those assumptions certainly do not fully conform to your personal tax and financial reality.

Assumptions are necessary evil (to some extent; some Cost Seg reports are more liberal in their use of assumptions than others), but you've got to know what they are so that you can adjust the "bottom line" to your personal reality.

So, what does matter in a Cost Seg analysis? 🤷‍♀️

👉 The percentage of depreciable basis allocated to short-life assets.

That's it!

The foregoing highlights why having a great tax advisor is so important, and why we prefer working with real estate investors that are well advised by their tax pros! (As a CPA, I may be biased towards tax advisors!😊)