All Forum Posts by: Tyler Baldwin

@Michael Plaks

No need to continue the back-and-forth

I thought we were simply having a discussion. I’m sorry if I offended you. I was honestly just curious about this situation.

And let me be very clear, my company always treats each client on a case by case situation. We love turning away potential customers who wouldn’t actually be able to take advantage of a Cost Seg. (I did it today for a woman in California, who didn’t understand passive vs active income)

The only reason I am speaking in “general” or “simplistic” terms here (as you described them) is because I don’t know all the information. But, I was asking about it because I truly was interested. I wanted to know more. I enjoy learning about various situations in our industry.

1-2) I had no idea he was trying to cost seg 20 100k dollar houses... that’s not something we’ve ever done.

3) Of course date in service maters, but this forum was about the 2017 tax law, and assumed we were talking about the benefits of Bonus Depreciation.

6) You can absolutely put a plan together to gradually cost seg properties as needed (rather than carry forward the depreciation) and rather than trying to buy multiple residentials in the future, you could also look at multifamily or other commercial options as the portfolio grows.

Thanks for the kind words. I wish you success as well. And I hope you continue to recommend Cost Seg Studies as a small weapon in your arsenal to help your clients.

I also hope your clients never hire a cost seg company like that one from your example, and from here on out they deal with companies that treat every client as a case by case specific customer.

@Michael Plaks

Yeah, poor guy. He got Cost Seg studies on 20 houses and couldn’t generate 300k in depreciation?!?

If the houses were worth an average of 200k each... he should of generated around 1.2 million in Bonus Depreciation. (Meaning, he should have only needed 4-6 cost Seg studies each year... increasing as he generates more wealth from the more property he buys with the 100’s of thousands of dollars in taxes he is avoiding)

That sucks, I feel awful for him.

@Michael Plaks

I love it! Great insight.

Out of curiosity, why couldn’t he attack that remaining tax liability with Cost Seg?

@Michael Plaks

Thanks Michael for commenting.

I read your article and feel bad about how your client was treated. I obviously can’t justify the work of a company like that. I hate when companies take the tax write off and times it by 37% (the highest tax bracket) to show how much they can save.

And of course I don’t think Cost Seg is the only tax strategy. But it’s a great one.

A couple things to consider for Paul: (I think that was the clients name in that article)

1) If he is trying to eliminate 100k in tax liability owed to the IRS, he should have picked a Cost Seg that would have worked with you (the CPA) to figure out exactly how many houses were needed to Cost Seg to counter that number. Then hit repeat each year. There was overkill in that example you gave. Take that away and the situation gets a lot better.

2) You mentioned that Bonus Depreciation is just depreciation that you would get anyway over 27.5-39 years. Of course that’s true. However, there is a real benefit to front-loading that depreciation.

As a real estate professional who just avoided paying the IRS 100k, Paul can take that cash and buy more property to generate more income and avoid more taxes.

If you consider the future value of a lump sum... avoiding 15k in tax liability today vs 27 years later means that $15,000 today is worth more than $61,000 twenty-seven years from now at 5.25% interest.

If done correctly, Paul could avoid paying that 100k this year and for the next several years. Along with increasing the size of his portfolio and generating more income in the future.

Let’s say he avoids 100k or more for the next 5 years. That’s half a million bucks. Sounds pretty awesome to me.

The treasury dept and IRS just released the final set of regulations for the popular 100% bonus depreciation schedule.

And great news for the Real Estate pros trying to avoid taxes... the “placed in service” date was extended to January 1st 2027 (2028 for certain longer production property)

So... you can keep up this new winning strategy... and avoid paying taxes for the next several years.

The Tax Cuts and Jobs Act of 2017 increased the first year Bonus Depreciation deduction percentage from 50% to 100%.

That means... taking advantage of a Cost Seg Study... you can buy a building, front-load 20%-40% of the total depreciation to the first year. Then, you can use all that tax liability you just avoided, to go buy another building. Hit repeat. And, avoid a ton of taxes every year while building a massive real estate portfolio.

Presidential candidate Joe Biden plans is announcing a $775 Billion dollar plan to boost Child and Elderly care. It’s a decade long plan that will be paid for by reducing or eliminating 1031 tax breaks for real estate investors making more than 400k a year.

Quote from Bloomberg: “a senior campaign official said a Biden administration would take aim at so-called like-kind exchanges, which allow investors to defer paying taxes on the sale of real estate if the capital gains are reinvested in another property.”

According to The NY Times: “Biden’s campaign said the programs, some of which would be operated with state and local officials, would be paid for by rolling back some taxes on real estate investors with incomes over $400,000, as well as by increasing tax enforcement on the wealthy.”

How will this potential new policy impact you?

My first thought, put more emphasis on Cost Segregation Studies to reduce tax liability in a world without/reduced 1031’s

@Andrew Hogan

Great insight Andrew!

We have helped a lot of clients with that very same technique. The current “bonus” depreciation rules allow for some impressive tax write offs with Cost Segregation.

Most companies like ours will put together free estimates to help syndicators show investors the kind of savings they might be looking at

@Brian Watts That’s great, congrats. What kind of upgrades are you focusing on?

2 Big Reasons Why I Think You Should Give Yourself a COVID19 Stimulus Package with Cost Seg

Treasury Secretary Steven Mnuchin extended the Federal Tax Deadline by three months. Which means you now have until July 15th to make your annual payment to Uncle Sam.

The tax extension also gives property owners extra time to wipe out their tax dept completely.

It’s been said a lot since the Tax Cuts and Jobs Act of 2017... but right now is the absolute best time to accelerate depreciation with a Cost Segregation Study. Let me give a quick explanation for anyone who hasn’t taken advantage of a Cost Seg Study yet. A construction engineer can classify the different components of your building. Those components can be placed into faster depreciation schedules for tax purposes. Thanks to the 2017 tax law, anything 20 years or less can be written-off as an expense immediately with Bonus Depreciation rather than stretching it out over multiple decades.

Here are two big reasons why you should pull the trigger and cash in on a Cost Segregation Study.

1. 2020 is going to be rough. So get as much money as you can right now.

No one here has a crystal ball, but you don’t have to be a soothsayer to know that the Coronavirus Crisis is going to have a deep impact on the economy.

Goldman Sachs and Morgan Stanley agree that COVID19 has caused a global recession. Companies are laying off employees as tourism, sports venues, hospitality industry, airlines and others all take major hits.

Avoid paying a ton of 2019 taxes. Use that money to weather the storm, and be better set up to purchase more properties as the deals roll in.

2. You may have to hold your building a little longer than you expected.

The Multifamily Market is in a much better place than the average 401k. However, things will adjust in the coming months.

For example, Trump is "suspending all foreclosures and evictions until the end of April" and multiple cities have passed similar policies allowing tenants to skip rent without facing eviction.

You wouldn’t get a Cost Seg Study on a property you were going to flip. But, that property you bought in 2018 or 2019 may not find the right price in 2020. If your circumstances have changed, and a quick flip has turned into a hold, take advantage of Cost Segregation.