If you’re serious about building wealth through real estate, you can’t afford to ignore the tax side. In this episode, CPA and active investor Sean Graham breaks down how cost segregation and bonus depreciation can save you (and your investors) tens or even hundreds of thousands in taxes—without changing your investment strategy. We cover how to use cost seg the right way, why most CPAs are doing it wrong, and what high earners need to know about the latest tax bill that could bring back 100% bonus depreciation. Whether you're a GP looking to raise smarter or an LP trying to boost after-tax returns, this episode is non-negotiable.
Key Takeaways
What Cost Segregation Actually Does for You
- Reclassifies components of a property to accelerate depreciation over 5–15 years instead of 27.5 or 39.
- Allows investors to take massive deductions in year one—sometimes more than the cash they put into the deal.
- Creates phantom losses on K-1s that can offset other passive income or gains.
Bonus Depreciation: What It Is, and Why It Matters
- 100% bonus depreciation (introduced in 2017) allows investors to deduct qualifying property in year one.
- It's phased down since 2023 but may return under new legislation.
- Huge benefit for both LPs and GPs—particularly when paired with proper tax strategy.
Using Cost Seg to Raise Capital More Effectively
- Smart GPs use depreciation estimates during the raise to attract savvy investors.
- Many LPs care more about the tax benefits than the projected cash flow.
- For deals over $1M, cost seg should be factored into your underwriting and pitch.
The “Look-Back” Strategy for Missed Depreciation
- Allows owners to retroactively apply cost segregation—even years after purchase.
- No need to amend prior tax returns; benefits can be taken in the current year.
- Especially powerful when strategic timing aligns with real estate professional status.
Avoiding Common CPA Mistakes
- Many CPAs aren’t familiar with real estate—leading to missed deductions and bad advice.
- Make sure your tax pro understands real estate-specific strategies like bonus depreciation, short-term rental loopholes, and REPS.
- Ask the right questions: Do they know how to handle depreciation recapture? Real estate professional status? IRA investing?
How to Work with a Cost Segregation Firm the Right Way
- Involve a cost seg firm early—before closing—so you can plan ahead and market benefits to investors.
- Studies typically cost $5K–$10K, but often result in six-figure tax savings.
- Smaller properties can use a “condensed engineering study” for reduced fees without sacrificing IRS compliance.
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