All Forum Posts by: Bernard Reisz

Getting a real estate transaction done is both science and art!

The deal requires highly technical legal expertise and the artful skill of negotiation.

Neil Greenbaum Esq. is a transactional attorney with over 25 years of experience in investing and practicing law. ReSure is honored for him to present THE ART OF THE NEAL: A Real Estate Attorney's Step-by-Step Guide to the Deal.

Learn the ins-and-outs of a real estate transaction, from start to finish!

👉 Identifying the Property

👉 Negotiating the Deal

👉 Entering into the Contract

👉 Performing Due Diligence

👉 Arranging Financing

👉 Closing the Deal

This is not-to-be-missed info, from a seasoned practitioner. No fluff info that will help you move forward with deals, while protecting your backside!

@Michael Plaks Believe it or not... this is my first time ever starting a thread on BP! 

Your input is valuable: How do you want your Cost Seg study prepared?

For context, let's cover some Cost Segregation fundamentals, and explain the interaction between Land Value and Cost Segregation:

Cost Segregation is the process of (a) segregating a "building" into its component parts and (b) allocating the lump-sum acquisition cost to those components. Hence the term, Cost Segregation Study.

Incredibly large tax deductions are created because many of those components are short-life assets, depreciable at a far faster rate than residential or commercial buildings that are depreciated over 27.5 and 39 years, respectively. And, ever since enactment of TCJA, much of that could be immediately depreciated as "Bonus Depreciation." (Bonus Depreciation is now gradually fading away.)

Question: How much of your total acquisition cost is the subject of a Cost Seg study? How much of the acquisition cost is part of the engineering allocation?

Answer: It is the total purchase price minus the portion of the purchase price that is properly allocable to the land, which is not depreciable.

While land allocation is not part of the Cost Seg engineering work, the final Cost Seg Report - that includes specific dollar cost allocations for components and a depreciation schedule - incorporates a land value allocation. A higher allocation to land results in less cost allocable to depreciable assets (i.e., lower tax deduction claimed). A lower land allocation results in more cost allocated to depreciable assets (i.e., higher tax deduction claimed).Of course, the IRS has a thing or two to say about how land allocation is properly determined. This is something that some of the great Real Estate CPAs of BP have posted about, in-depth. 

CPAs, EAs, Accountants, Real Estate Investors, Equity Raisers, Tax Professionals (or anybody that's got an opinion):

What default land allocation assumption would you like to see incorporated into Cost Segregation Reports, yours or your clients?

@Luka Milicevic Well said! The distinction between tax tool vs tactic vs and strategy is too often blurred! 

@Michael Plaks BP programmers have got to allow for "reactions" that are more expressive than a vote! 

Of course, for those that are not tax pros (Edit: Tax pros also benefit immensely from Michael's incredible expertise!), pay close attention to everything @Michael Plaks has to say... just be sure you're discerning between his unparalleled tax guidance and unparalleled tax satire!   

@Michael Plaks and @Chris Bird Would add that in a true flipping context, not only is 1031 inapplicable... neither is cost seg. Cost Seg and 1031 Exchange tend to go in hand-in-hand.

@Chris Bird It can make sense in so many scenarios, but always requires an awareness of all the moving parts and, occasionally, a crystal ball. But, in the absence of a crystal ball, decisions require a combination of nuanced, objective tax expertise, along with some subjective convictions regarding the future.

A 1031 exchange will allow you to, generally, sidestep depreciation recapture. But, will the exchange be successful? Can you buy another property and use cost seg to bonus depreciate and offset income/gains? Possibly, but tough to know today, with certainty.

@Michael Plaks I've been absent from BP for a while and your incredible post def made it worth visiting! (Although you could have just posted the whole thing in REI Tax and Legal Wizards!😉)

P.S. Can we get you to add something here about the interaction between cost seg and installment sales? 

@Christopher Boon I should add that as a NY investor, you should ensure that whoever you use is very familiar with NYS AND NYC tax & legal regimes. NY is one of those states that has more than its fair share of idiosyncrasies. In fact, the LLC-Management Structure video referenced above relates to exactly something of that nature.

@Christopher Boon I've, actually, deemphasized "traditional" tax services to focus on consulting and delivering more specialized services (1031 Exchange, Self-Directed Retirement Accounts, entity structuring, etc.). I do lots of advisory, but am not taking new tax preparation work. I would strongly encourage reaching out to @Michael Plaks and @Daniel Hyman, among others. No two true tax pros are alike, but what they all have in common is a commitment to providing you with tailored and honest service. I also encourage some caution with regard to promoted marketing webinars on tax and legal topics. As much as I wish true tax and legal services are scalable and can be mass marketed, experience has shown that is seldom achievable.