Cost Segregation Techniques You Should Apply Today to Reduce Taxes

We are back with another interesting topic to better aid our readers. In this installment, we will be going over cost segregation. Cost segregation, in essence, is accelerated depreciation. Meaning, those who manage to get into real estate can depreciate their assets to help lower their taxes.
However, a lot more goes into how this process is calculated, along with other variables that need to be considered. To help us delve into this subject matter, we have brought on an expert to help.
Here to join us on this addition to the channel is Erik Oliver. Prior to joining Cost Segregation Authority, Erik was an Operations Manager for a multi-million dollar landscaping and design firm in Long Island, NY. Since heading west and joining Cost Segregation Authority, Erik has been speaking at local, regional, and national events. He brings with him a passion for identifying cost savings and educating commercial real estate owners on the benefits of cost segregation.
Learn more about Erik and Cost Segregation. 👇
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About Cost Seg Authority
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The two of us will be going over techniques and strategies geared towards cost segregation on your properties. Anyone looking to lower their income taxes can not afford to miss out on this video, as our expert gives first-class words of wisdom to those willing to listen.
We would like to extend our thanks to Erik Oliver for taking the time to talk with us on this subject. Furthermore, we want to thank our audience for tuning in. If you enjoyed the content, then be sure to leave a like and subscribe to the channel. Don’t be afraid to hit the bell icon so as not to miss out on our latest videos too. Anyone who still has lingering questions or thoughts should head over to the comments section, as we love hearing from our viewers. Till next time!
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The information provided in this video should not be construed or relied on as legal advice for any specific fact or circumstance. Its content was prepared by Anderson Business Advisors with its main office at 3225 McLeod Drive Suite 100 Las Vegas, Nevada 89121. This video is designed for entertainment and information purposes only. Viewing this video does not create an attorney-client relationship with Anderson Business Advisors or any of its lawyers. You should not act or rely on any of the information contained herein without seeking professional legal advice.
#costsegregation #realestate #business

[@ClintCoons]

Claim Your FREE 45-minute Investment Strategy Session to receive business planning tips and asset protection. 👉 aba.link/ii9

[@gameoflife7235]

I've been watching your videos for years now and finally took the plunge and bought 3 SFRs this year. Being able to use so many of your tips is great! Between cost segs, tax gain harvesting, investing strategies and more I'll pay the lowest taxes I've ever paid while earning the most income. My only regret is not starting at the bottom of the housing crash.

[@ClintCoons]

That is great. Best of success.

[@coumadin75]

Don't forget about PAD I wish I knew how to do that

[@jhuilar]

@gameoflife how are things going a year later?

[@nyacoustics8373]

What fif you have a rental property that has three apartments in the farm house.then has three old barn buildings and workshops on the 25 acres of land. Can the house with the rentals and the old barn structures be cost seg and used for bonus depreciation?

[@lisakeene1407]

right off the bat...I LOVE TRUMP. Didn't know this existed, great to know, of course. So, the bookkeeper does the Cost Segregation?

[@carlosmelendeztaxhax]

This is all fine and dandy but remember the more you cost seg and retire line items with pad, the more you lower your basis and that recapture is gonna be crazy if you sell or do a 1031. TCJA killed the deferral of taxes on any property that isn't real property and cost seg creates more "other property" So, be careful

[@carlosmelendeztaxhax]

I forgot to mention at 12:29 carryover loss isn't offsetting current year gains because of the recapture. I'm disappointed attorneys would be spitting out lies. Carryover loss may offset recapture but not capital gains. Forget that. Also, you guys have PAD wrong. AT 16:38 you talk about 3 months, you can't depreciate assets placed in service and disposed of in same year. This is bad. Clint should fix this.

[@ClintCoons]

Carlos I am frist to admit - my partner Toby Mathis is the tax guy and I try my best. :). Regarding your comments, I believe the IRS issued final regulations in 2020 (www.federalregister.gov/documents/2020/12/02/2020-26313/statutory-limitations-on-like-kind-exchanges) addressing 5 and 7 year cost seg property. The regulations treat nearly all of it as real property for 1031 exchange purposes. At 12:29 we are referring to the Cost seg losses being used to offset gains from the sale of a different asset not the existing property. We should have clarified that you would need to be a RE professional or cost seg a STR property that you materially participate in to use the losses against your Cap gains. Alternatively, consider taking the 1245 losses from a cost seg and using them to offset the 1245 gain recapture on the sale of a different property. In this case the planner would want to categorize more of the recapture as 1245 versus 1250. (see below) You are correct that we would have 25% recapture on Sec 1250 Cost seg property versus ordinary income on Sec 1245 property. However, a planner should allocate as much of Sec 1245 to Sec 1250 on the sale to keep the tax at the lower 25%. At 16:38 we are discussing that to be eligible for a PAD the property must be placed in service before you can take advantage of cost seg/PAD. Correct, if the property is not held for investment then you are not eligible to take the deduction. Let me know what you think of the above clarifications and thank you for adding the feedback. I truly appreciate your watching and taking the time to comment.

[@therealfire.]

@@ClintCoons Tks for your follow up. The 2020 guidelines have almost no real world application as it pertains to cost seg. The standard for like kind associated personal property is super strict and hard to implement. So, that’s a grey area with little use. But the whole 3 month rent on a purchase involves putting an asset into service and 3 months later retiring that asset from service. It can’t be done to claim any depreciation, adjustment in basis, etc. Now it can be 1 day if it’s 12/31 and then 1/1 for example. So I think that’s a clear mistake in the video. You can’t claim depreciation on any kind of business/investment property that you place in service and retire in the same tax year.

[@tommysors1476]

Clint Coons thank you for this video. Great info as always!!!!

[@ClintCoons]

My pleasure!

[@Kalease54]

Thanks for the video. Depreciation recapture wasn’t discussed and is an important topic to consider with cost segs as well as 1031 exchange impacts.

[@ClintCoons]

Great point!

[@buzybill]

I've done cost segregation with Cost Segregation Authority, LLC. They may be experts in cost segregation studies, but did you know that they don't know how to calculate the cost basis? They just use CONTRACTED PURCHASE PRICE! Not capitalizing legal, title insurance, and recording fee etc. I would verify if they got the right cost basis, if not you'll be the one paying the penalties. I had them change it, but haven't heard from them for couple weeks.

[@eeyespytran4988]

How would we verify if we aren’t familiar with how cost segs work and they are the “expert”

[@buzybill]

@@eeyespytran4988 Ask an accountant if the cost basis is capitalized correctly along with HUD statement and their cost study. Or just ask the accountant, "what is my cost basis?" by showing the HUD statement. It should include contract price, legal, title insurance, record fee, etc.

[@eeyespytran4988]

@@buzybill Thanks. I assume you’re still waiting for them to remedy your analysis? Please keep us updated.

[@buzybill]

@@eeyespytran4988 Yes. Sure.

[@shannonhail5597]

If purchased before Sept 28 2017 then you get 50% of the bonus…. So you are still eligible.

[@ClintCoons]

Yes and it would depend on when the property was placed in service. Property acquired before September 28, 2017, and placed in service after 2019 is not eligible.

[@jaybhattacharjee9107]

I just converted my primary residence to rental property in 2023. Can I use cost seg? Can I get bonus dep?

[@ClintCoons]

Yes but you cant use bonus depreciation.

[@e1n17g13l1i14sh]

I’ve spoken with Erik, he’s very patient and takes the time to answer questions

[@ClintCoons]

Yah he is a great guy.

[@JimCandy-llamas]

How do I find show notes with contact info and other links to related content?

[@ClintCoons]

Learn more about Erik and Cost Segregation. 👇 andersonadvisors.com/csa/ About Cost Seg Authority 👇 costsegauthority.com/about-us/

[@cindianderson9443]

If you have a loss after applying all the catch-up depreciation from a cost segregation, can that be applied to excess capital gain on sale of a primary residence, or does it carry forward to passive income in the following year?

[@ClintCoons]

Carries forward

[@cindianderson9443]

@@ClintCoons Bummer but that's what I suspected. Thanks

[@MotivLifter]

How do I get your company to look at my properties?

[@ClintCoons]

andersonadvisors.com/csa/

[@cindyhewett6966]

I'm geeking out on this stuff! Love it! Lots of great ideas!

[@ClintCoons]

Great

[@carlosmelendeztaxhax]

@@ClintCoons You should fix this video. 2 major problems. I forgot to mention at 12:29 carryover loss isn't offsetting current year gains because of the recapture. I'm disappointed attorneys would be spitting out lies. Carryover loss may offset recapture but not capital gains. Forget that. Also, you guys have PAD wrong. AT 16:38 you talk about 3 months, you can't depreciate assets placed in service and disposed of in same year. This is bad. Clint, fix this

[@NoOne-fe8qt]

Clint - loving your videos and the generous sharing. Wish more success to you, your partners and Anderson. You guys deserve it! Q: Am over the MAGI limit from W2 job. Bought 3 rentals 2021. Doing an Amendment for 2021 taxes now to include cost segregation (cleaner approach. Start correctly. Not difficult either). There will be no cash flow benefit to me for years whether I take Bonus depreciation 100% of the 5 year segregated items in 2021 OR spread it over 5 years. However, if I need to change out a carpet or appliance before the end of the 5 year period, and would like to depreciate the new item in say 2023, which is option is better now for the 2021 Amendment: a. Take 100% depreciation today and let it Carry Forward (get it off the books). Simple strategy, maximize benefit although delayed. Any negatives? b Continue partial Depreciation for 5 years and deal with the swap some other way ( Partial Disposition). Seems more complex and work! Unforeseen IRS obstacles? I plan to keep the properties and hopefully pass it down as inheritance. So depreciation recapture is not a factor.

[@carlosmelendeztaxhax]

MAGI isn't relevant here. Only way you are getting paper losses with any depreciation is if rentals are run as business or if you are REPS. So, Cost Seg won't help you, unless the rentals are business income paying self employment taxes and claimed on Schedule C and NOT Schedule E

[@joelmendoza6325]

How can I get in touch with you?

[@ClintCoons]

If you would like a FREE 30-minute consultation, you can request one here - aba.link/30minSession

[@jhuilar]

@Clint do you have any recommendations of which CPA firms to use?

[@ClintCoons]

Anderson. :)

[@austinruckstuhl4928]

Yall refer to the ability to apply these losses if you are a real estate professional (Im very clear on that) or it’s a STR investment property. Do you have another video or resource on that STR exemption that would allow me to deduct passive losses from active gains?

[@ClintCoons]

Yes - kzbin.info/www/bejne/oWiXo4J4r7uMgpY

[@chiphoward8565]

If I bought a STR property at the end of the year and put it into service this year and did a cost segregation this year as well, how many days do I need to rent the property this year to be able to take the full 100% bonus depreciation deduction?

[@ClintCoons]

No minimum number but your average rental period must be 7 days or less.

[@bryannn1998]

Been watching your videos like crazy! Here’s my situation. I’m 23yo in college getting my Finance degree. I don’t work and still live at home but have amassed $150k in the stock market in about 4 years by diligent investing and basically devoting my life to it. Of those $150k, $120k are unrealized capital gains. I want to pivot and begin to buy real estate. I’ve been doing my homework and here in Miami the Best return on investment capital is 1/1 bed and bath and they are going for $135-$150k. I want to leverage my money as much as possible Ofcourse and want to buy several properties. Do you recommend I transfer my stock into an LLC, report taxes on the LLC once I realize the gains and purchase real estate under the LLC? Or is there a better way to do it. I’m fighting an uphill battle with no work history and no tax history but I have some funds and I want to make the best decisions! Hope to hear from you soon!

[@ClintCoons]

You would not receive a benefit from selling your stock in an LLC versus you own name. If you think the market will continue to climb you might consider borrowing against your portfolio (this is called margin) and using the funds to invest in real estate. This way you do not have to sell any of your positions and pay tax.

[@bryannn1998]

@@ClintCoons Nice! Thank you! Do you think I can purchase real estate with $150k and no tax history? I’m just starting to begin getting ready to sell some shares. I just have no idea how I’m going to begin doing real estate 🏡

[@ClintCoons]

@@bryannn1998 If you are looking to borrow it will be difficult. You should look for asset based lenders.

[@bryannn1998]

@@patboyle7174 yes! But what I’m currently holding is incredibly risky! So I would like to do this with a more stable well diversified portfolio

[@holylabs]

@@bryannn1998 did you end up pulling your money out in time?

[@rcruz401]

Can a cost seg ever give you a reimbursement or money back when you file your taxes? Or is it only continuously carried forward if you don't have sufficient income to offset for that year?

[@ClintCoons]

Carried forward

[@nickbrunette8292]

Amazing content thank you so much for clarifying things in this video.

[@ClintCoons]

Glad you enjoyed it!

[@natalienaito2995]

This was a great video. Thanks Clint! I'm looking to invest in a real estate syndication this year and the close date is sometime in December. A cost segregation analysis will be performed. Can I delay the depreciation benefit when I do my taxes in 2023 for the 2022 tax year? I don't have any sort of real estate investments currently and my understanding of how to benefit from depreciation is that the amount can be deducted only from the real estate income amount and not towards my regular W2 income (since I am not a real estate professional).

[@ClintCoons]

Yes you can. You just need to acquire the property before the end of 2022 to get the full bonus depreciation.

[@sueforwith]

If I move out of my primary home and make it a STR, can I do a cost segregation?

[@ClintCoons]

Yes if you convert it to an investment property.

[@averybeasley7347]

Are the "retired" assets expensed or do they become a capital loss?

[@ClintCoons]

Are you referring to PAD? If so it is a deduction.

[@taddrienstra7247]

Who does cost segs? Never heard of this before. Seems very specific

[@ClintCoons]

Check out the show notes.

[@luciodeluca3257]

Hi Clint. Your videos are so awesome! Thank you for posting them! I've got a question I hope you can answer. My scenario..... I bought a vacation condo 18 yrs ago which I rent out most of the year (min 30 day stay). I've been depreciating it over 27.5 yrs and have been able to take advantage of the deductions & depreciation. However, over the last couple of years my salary has way surpassed $150k and as you know the tax code prohibits me now from taking most of my deductions/depreciations. I am not a real estate professional, nor do I want to start doing short-term rentals. Is it worth doing a cost-segregation analysis on the property now? and if so, will I be able to take immediate advantage of the tax savings? I would love to recoup some of the $35k in annual taxes they take out of my paycheck. Thank you in advance. You opinion is so appreciated. Thanks again

[@ClintCoons]

If you bought it before October 1, 2017, probably not. If you bought it after you will need to meet some tests to qualify. 1. your average rental period should be 7 days or less and 2. you must spend 100 hours self managing your property and more time than anyone else.

[@carlosmelendeztaxhax]

No. Only if you Switch them to short term rentals

[@BW-kv9wj]

Can this be done on a DST property where I own a small percentage of a huge gigantic multi level office building? I own $1.3M of a $50M property with other investors in this DST? And if so, would I have to send him out there to do the study of the building?

[@ClintCoons]

Yes and it is common in your situation to perform such a study.

[@BW-kv9wj]

@@ClintCoons Thank you

[@sueforwith]

On a Short term rental, can I cost segregate furniture?

[@ClintCoons]

Typically you would expense out the furniture under Sec 179 and bonus depreciation and not cost seg.

[@virginiayanos2234]

How do I get in touch with Eric Oliver?

[@ClintCoons]

andersonadvisors.com/csa/

[@coumadin75]

If I move out of my home into a rental property then convert my original home to a rental and do cost seg and bonus depreciation, can I move back into my own house as primary residence? What happens to captured depreciation as the house hasn't been sold ?

[@ClintCoons]

It would depend on when you purchased your home and how long you rented out the property.

[@coumadin75]

@@ClintCoons I have a consultation scheduled with your team. I hope that I can talk to you as well during that time

[@z5m2]

Does the age of the building matter? If I buy an 50 year old property, with 15 year old appliances and carpet, can I still provide an estimated value for those items (cost seg) and depreciate those assets faster? The estimated value of those old appliances, can I use market values of new appliances?

[@ClintCoons]

The age does not matter only how long you have owned the property.

[@z5m2]

@Clint Coons: Real Estate Asset Protection interesting! Thx! So if buy a property with 16 year old appliances (that may have already been fully depreciated by the former owner), I can apply a market value (cost basis) to those same appliances still and depreciate them over 5 years?

[@ClintCoons]

@@z5m2 Yes

[@yanpingye3518]

So does this accelerated depreciation apply to someone’s primary residence? Or just rental property?

[@ClintCoons]

Just investment property

[@vltod9167]

Is it possible to live in my rental property and pay rent to my llc and use the advantage of owning a rental?

[@crazycrayfish7610]

@@vltod9167 it doesn't make sense. You are creating taxable income for the LLC for nothing.

[@stevenw373]

Amazing show guys! Thank you!

[@ClintCoons]

You bet!

[@nechamia]

can you describe if cost seg can be used on international asset

[@ClintCoons]

Bonus depreciation is not available to foreign real estate.

[@nechamia]

@@ClintCoons Does that apply for short term rental properties as well? Thanks!

[@ClintCoons]

@@nechamia You can use Bonus on STR if it is located in the US

[@AdrianButler86]

Would a person do this study before or after a rehab or b4 n after?

[@ClintCoons]

Before and after

[@AdrianButler86]

@@ClintCoons that's what I figured Clint. But not with a true fix n flip right? True, meaning where u buy a sfh that's uninhabitable and vacant and u plan to sell it and not keep as a buy n hold prop. But cost seg can be done after repairs if u buy a vacant n uninhabitable prop as long as it's done, in service and u plan to keep as a rental, right?

[@ClintCoons]

@@AdrianButler86 Yes you must place the property into service if you want to depreciate it.

[@jameszeris5418]

Great video

[@ClintCoons]

Thanks for the visit