How the Rich Pay ZERO Taxes w/Real Estate Cost Segregation Studies

[@biggerpockets]

What's your top question about taxes for investors? Let us know in the comments!

[@Odelle8]

How can you prove real estate hours worked? I watch biggerpockets all day while I do my w2 job. Does that "real estate research" count?

[@Odelle8]

my understanding of the tax liabilities after 1031 or cost segging is deferred until sold, but if they are inherited by your children that tax liability doesn't transfer to them (is that how it works?). If so, I can think of ways to utilize my kids lack of tax liability to benefit myself now and also set them up for real estate success in the future. Would this work hypothetically?

[@monto008]

@@Odelle8pay your kids with income from your investments. It’s described well in the Bigger Pockets Tax Strategies, and Advanced Strategies, books. For example. One pays their child with the cashflow from their real estate. This is a business expense so you don’t pay taxes on that $. The child then pays for their school tuition with that money. You effectively got tuition for your effective tax rate less.

[@tax-modern]

@@Odelle8 No, hours for general real estate education don't count as qualifying hours for real estate professional status, or for material participation. Trying to use education hours is one of the most common types of hours that taxpayers try to use, but it gets disallowed by the IRS.

[@DanKohan]

This video explains how real estate investors can save on taxes using cost segregation. It's like getting a bigger tax refund by breaking down your property into smaller parts and deducting them faster. Bonus depreciation is like a supercharge for these deductions, letting you reduce your taxes even below zero and potentially get money back. This is a must-know for anyone into real estate investing. Thanks for sharing this tax-saving trick!

[@MikeHawk143]

But does not explain you still will eventually have to pay the taxes in the future.

[@EverythingCostSegregation]

True and Untrue. It all depends on the exit strategy (1031 or deferred sales trust) and how long you plan to hold the property. In most cases the tax savings recouped from cost segregation will actually out benefit the downside of the recapture tax. Time Value of Money. But this is a good point that you bring up, make sure to review with your tax advisor and that the benefits of accelerated tax savings meet your RE/ business goals.@@MikeHawk143

[@frobinson1981]

Dave and Rob giving out the good stuff on this episode. I 🖤 accounting and taxes taxes taxes.

[@Ryanfeaton]

hey David, My question is - can the depreciation you take from a cost seg study reduce your tax liability on a sale of investment property? for example, i’m waiting another year to sell my primary home, which has previously been an investment property, so i can avoid capital gains taxes by it being my primary for two years. I’m a travel nurse and the home is rented currently so i still have the option to designate it as primary or investment property for tax year ending 2023.. not sure which way i want to go. id love to sell it now but my gains would be around $275k. i won’t sell with the capital gains that go with that, but i purchased 2 investment residential homes, one in 2022 and one in 2023 worth about 300-400k each. i was thinking i could do a cost seg on each of those and knock down my tax liability on the sale of my other home. is that how it works? if i could get my capital gains based on a 100k or less i can take that hit but not on 275k. and, please let me know your insight on, ballpark, how much the cost seg on a 300 or 400k home would even be. is it worth it? long question. thanks for considering an explanation on this. Ryan from New Orleans and Colorado and other places.

[@calvinb1966]

How does cost seg work with a STR house hack? For example, I spent money to finish my unfinished basement to make it a separate entry STR. Can you use the expenses of the materials, labor, and furniture to get it up and running towards cost seg? I am asking this because I feel like for investors to get started nowadays, housing hacking/owner occupied situations are a must considering increasing STR restrictions and higher barriers to entry in some areas. Thanks for the great talk!

[@TJ-th9hw]

Awesome “Seeing Green” episode as always! Thank you for providing great answers to great questions.

[@monto008]

If I close on a property 12/29/23 and put it in to service that same day as an STR, can I perform the cost seg study on 12/29/23? The strategy here is to get the 80% (2023) vs. 60% (2024) bonus. GREAT episode!

[@rajanyoume]

Can you rent your primary property for short term rental and qualify for W2 tax reduction?

[@tax-modern]

Not if you are just renting a room in your house. It has to be a separate "dwelling unit". So renting out half of a duplex could qualify, but not if you're just renting out rooms in your house.

[@jasonbrungardt3682]

Great episode! As investors we are always looking for some way to extract extra profits out of profits. Taxes... A penny saved is a penny earned. Not stressed enough. Thanks so much. Just to be clear, if you buy properties, take advantage of accelerated depreciation, and never sell the property, does that tax liability go away at your death and your properties are transferred to your family?

[@thejollyredgiant5714]

I plan to go full time in real estate (wholesaling) within the next 16-18 months. If im understanding this correctly i can only get the tax benefits from my rentals against that wholesaling income IF I am a real estate professional because wholesaling produces ACTIVE income. Right?

[@megancloses]

This was awesome 🎉🎉 thank you!

[@thejollyredgiant5714]

What if you 1031 and do all the tax stuff then at the end you seller finance your portfolio. Does that negate any of that because its debt payback? Or when the term of that seller financing is completed you get slapped with all of those deferred taxes?

[@tax-modern]

You can use a 1031 exchange to defer all the gains, including any accelerated depreciation. So that works. But if you do seller financing (an "installment sale" as the tax code calls it), that can spread out your capital gains over multiple years. But not depreciation recapture, you do have to pay taxes on the depreciation you took in the year you sell the property, even if you're doing seller financing.

[@thejollyredgiant5714]

If I have a 2/1 thats a LTR and an separate ADU that I make an Air BNB can I depreciate the entire house against my active income? Hope that makes sense

[@MikeHawk143]

Feel like Rob has sold cost segregation in viral videos, as Wiping Out taxes, or Pay No Taxes. He’s figuring the ROI of a lowered tax bill, same as cash in hand, when figuring cash on cash returns. Sorry this seems very wrong. From my understanding cost seg is actually just tax deferring and actually can cost more in taxes in the future when you have to eventually pay them down the road as explained in this video.

[@jasondaniels8962]

Actually accelerated or bonus depreciation is very advantageous for the right situations and although there is recapture you can avoid paying a hefty Billy down the road by again being strategic through a 1031 exchange into or real estate investments, or offset them with other paper losses from real estate or even 1031 exchange into a DPP Oil and Gas investment.

[@aszutowicz]

This is helpful thank you

[@JohnSmithh644]

You guys kept saying it's a defferal you have to pay later, but you never said the situation when you ay it later??!!! So when/how do we have to pay the piper?

[@marklebedzinski342]

When you sell.

[@TrevorRiley320]

I thoght you were able to use losses to offset your w2 income if you made under $150k or something like that? Maybe I read that wrong somewhere.

[@Freshprankstv1]

Mitchell “to your point” Baldridge

[@vmrosales3]

Am I the only one or is the video not starting

[@MarshalLance]

It's not working for me either.

[@gregorylarson9971]

Same

[@biggerpockets]

It looks like it's working now!

[@vmrosales3]

Thank you

[@mike2959]

Ehh..I own the restaurant. That’s helped me fund real estate purchases. Your example of depreciated assets are a bit off. There is no actual dollar amount listed by the IRS that says anything over say 5K must be depreciated. The only language is real estate and vehicles. So, yeah. I purchased a 5K dish machine. Funny you brought that up. I expensed it all in the same year. You are not forced to depreciate a 3K computer but not a 1K computer.

[@mrwiseman8989]

Regarding Rob’s property he mentioned he was going for that’s costing 2.3 million... Bro what kind of market does a property cost 2.3 but only yield 30-40k revenue per year lol.

[@WG96593]

Tax benefits... if you don't reap it, you keep it!

[@jasondaniels8962]

I think you mean 2009 wiped out so many Real Estate investors.

[@goat9199]

2nd

[@SarahMayet]

You left a lot out and could of condensed a lot of this content in a much shorter time.

[@gilbertchecoury]

Having a good CPA Accountant that specializes in real estate investment along with the right team of real estate professionals will help you to maximize your profits from your portfolio. ❤️👏 @GilbertChecoury