All Forum Posts by: Bernard Reisz

@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!😊) 

@Michael Plaks Honored to be mentioned by you, as always!

@Shane Craig Michael's posts are required reading for those looking to truly understand the pros and cons of Cost Segregation. Highly recommended reading for all real estate investors and their tax advisors! 

@Michael Plaks Your post should be half as long! 😜

@Michael Plaks MACRS retained the same "depreciation" concepts as ACRS, just with a limited attempt to bring it more in line with realty.

@Michael Plaks I made it about half way through post... and then switched to the Starbuck menu!

Amazing post, as always! Required reading for real estate investors, really.

Allow me to indulge in some self-quoting to illustrate that Congress did not lose their marbles, but rather wanted to spur economic investment by divorcing "depreciation" deductions from reality, perhaps indicating that, on the contrary, whoever came up with these rules was a real estate investor! 😊

Essentially, Congress is allowing "cost recovery" deductions without regard to obsolescence.

ACRS eliminated salvage value, minimized exceptions and elections, and moved away from the useful life concept.

ACRS allowed depreciation deductions for recovery property over a predetermined recovery period by applying a statutory percentage to its basis (cost).

Under ACRS allowed "depreciation deductions" no longer correspond to literal depreciation.

Since ACRS is not based on estimated useful lives, cost recovery under it may not technically qualify as "depreciation" in its literal sense, and the term "depreciation deductions" is used for convenience. In other words, ACRS is the end of true depreciation tax deductions!

Caramel Frappuccino® Blended Beverage, 

Espresso Frappuccino® Blended Beverage, 

Mocha Frappuccino® Blended Beverage...

@Kyle Swengel It's all about using an integrated suite of real estate tax tools, as applied to a particular investor's tax profile. 

As you point out, Cost Seg and 1031 can complement each other very nicely. Of course, as you emphasize, having a real estate focused CPA is key to unlocking the upside, and avoiding unintended consequences, of tax tool implementation.

@Kyle Swengel Kudos for being thoughtful and proactive about your taxes!

As someone with a CPA background, I emphasize more than anyone (perhaps with the exception of the truly amazing @Michael Plaks) that a nuanced approach is required for tax tool implementation. The ROI on tax tools varies greatly from investor to investor and hinges on several variables, some of which can be objectively analyzed by a real estate tax expert and some of which require some subjective analysis (for which a real estate tax expert can provide valuable context).

There are really 2 "no brainer" steps to take to get clarity for an informed decision:

1 - Read Michael Plaks' posts about this topic. With just a bit of reading you will be way more informed than any non real estate focused accountant.

2 - Get a free Cost Seg feasibility analysis for your property.

Armed with the info from those steps you'll be able to make informed decisions about how to move forward.

@Michael Plaks Honored by the mention, coming from one of the foremost real estate tax experts in the nation! 

@Pierre E. Definitely recommend reading the posts that Michael references before getting a cost seg study done. A cost seg illustration/report can not fully capture how your personal taxes will be impacted by cost segregation and Michael's posts will make you an informed consumer of tax services. In fact, our preference is to work with investors that have great tax guidance, so that we can be confident that we're delivering a service that is optimally matched to investors' tax strategy.

@Michael Plaks Always an honor to be mentioned by you (and in great company)!

Step aside REPS!

The short term rental tax strategy is a powerful way to reduce taxes on your active income, even if you do NOT qualify as a Real Estate Professionals for tax purposes ("REPS")!

During this live event, real estate CPA Ryan Carriere will teach the ins-and-outs of this sounds-too-good-to-be-true tax loophole:

👉 What really makes STRs attractive from a tax perspective

👉 The short-term rental loophole that cuts taxes even further

👉 How to execute the STR tax strategy

👉 How to claim STR deductions and "losses" on your tax return

Who is Ryan Carriere?

▶️ Ryan is a CPA helping real estate investors pay as little in tax as possible by simplifying the tax code.

▶️ He's a real estate tax strategist who understands the unique strategies for real estate investors.

▶️ Ryan's a phenomenal tax educator and prolific author, consistently creating real estate-focused tax content to help investors - at every stage - be tax smart.

If you're looking for a real estate tax strategist who understands the unique strategies for real estate investors, you've found the right person!

• Click here to follow Ryan on LinkedIn (He posts awesome real estate tax content!)
• Click here to pay less taxes (Work with Ryan and his team at Hall CPA, PLLC)