November 18, 2024 • 29 mins
Unlock the secret to maximizing your real estate investment returns with expert insights from Chris Streit, CEO of Cost Segregation Authority. Discover how the strategic use of cost segregation can elevate your cash flow by accelerating depreciation on your properties. Special focus is given to senior living facilities, where reclassifying building components into shorter depreciation categories opens the door to immediate liquidity and further investment opportunities. Tune in to learn about the powerful tax incentives available, such as the 179D energy efficiency deduction, which can significantly amplify your financial returns.
Navigate the complexities of cost segregation and depreciation with us as we debunk myths like its restriction to new or improved properties. Chris sheds light on the broad applicability of these strategies across various real estate types and discusses the evolving landscape, highlighting reduced costs and increased accessibility of cost segregation studies. We dive into the critical balancing act between achieving immediate tax savings and managing future depreciation recapture liabilities, showing you how to execute a thorough cost-benefit analysis for smarter financial decisions.
Finally, gain a deep understanding of the intricacies involved in managing client expectations around recapture, particularly when properties are sold sooner than expected. We provide guidance on evaluating the economic viability of cost segregation for different properties, emphasizing the importance of holding periods and financial strategy. Learn how recent legislative changes, like the Inflation Reduction Act, present new opportunities and challenges in maximizing tax benefits through energy efficiency incentives. This episode is a treasure trove of practical advice, ready to transform your approach to real estate investment and taxation.
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Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Speaker 1 (00:07):
For really anybody who has a real estate investment
property, something thatgenerates income they benefit
from cost segregation.
But somebody in the seniorliving space has even more
opportunity because somebody inthis space is typically
investing a lot in improvementsin a property.
There's a lot of stuff insidewhat you would call the building
envelope.
One of the biggest impacts thatcost segregation provides
(00:28):
somebody in that space is animprovement to cash flow through
accelerated depreciation.
So your living facility takesan asset that can be depreciated
over the course of 39 years andtaking a small portion every
year and rapidly takingimprovements and moving them
into five, seven and 15-yearcategories all at once and
taking the benefit of thatdepreciation now.
(00:51):
So that way the money isavailable to be used now as an
investor.
You can use it to make furtherimprovements on the building or
to go buy another property.
Speaker 2 (01:04):
Welcome to the Senior Housing Investors Podcast.
If you are an owner operator,investor, developer or buyer of
senior housing, you've come tothe right place.
The best way to stay connectedwith us is to sign up for our
weekly newsletter athavenseniorinvestmentscom.
This podcast doesn't existwithout you, our community.
(01:26):
Thank you for listening andreach out to us anytime.
Speaker 3 (01:35):
Welcome back everyone .
Today, our host, john Haber, isspeaking with the CEO of Cost
Segregation Authority, chrisStreet.
Cost segregation services areone of the most effective ways
to free up liquidity and improvecash flow.
If you own a qualifyingcommercial or residential rental
property and you're currentlypaying taxes, cost segregation
(01:56):
is likely to provide significanteconomic benefit for you.
Listen in to hear how CostSegregation Authority is
increasing cash flows for theircustomers.
John.
Speaker 4 (02:08):
Elsie.
Thank you very much, Chris.
Welcome to the show.
Thank you, it's good to haveyou on and good to get to know
you at the last show we were at,and so tell us a little bit
about yourself and your companyand we'll go from there.
Speaker 1 (02:25):
Yeah, sure so, chris Stried, thank you for having me
on, john, it's definitely apleasure getting to meet you.
I work at a firm CostSegregation Authority.
We pretty much just do onething, which is cost segregation
, but also energy efficiency,tax credit, all tied to real
estate, real estate investmentsand maximizing tax incentives
for those people who do investin real estate and for those
(02:45):
people who develop real estate.
Speaker 4 (02:48):
Awesome, and how does that benefit the senior living
space?
Speaker 1 (02:53):
Well, you know.
So interesting enough, really,anybody who has a real estate
investment property, somethingthat generates income, they
benefit from cost segregation.
But somebody in the seniorliving space has even more
opportunity because somebody inthis space is typically
investing a lot in improvementsin a property.
There's a lot of stuff insidewhat you would call the building
(03:13):
envelope.
So one of the biggest impactsthat cost segregation provides
somebody in that space with thattype of focus and investment
strategy is an improvement tocash flow through accelerated
depreciation.
Cost segregation in particularis a way of taking something
that in the case, so your oilingfacility takes an asset that
(03:34):
can be depreciated over thecourse of 39 years and taking a
small portion every year andrapidly taking improvements and
moving them into five, seven and15-year categories all at once
and taking the benefit of thatdepreciation now.
So that way the money isavailable to be used now.
As an investor, you can use itto make further improvements on
the building or to go buyanother property.
(03:56):
It's really one of the key waysto generate additional cashflow
.
And those people who developthese types of facilities, in
addition to cost segregation,they have a lot of opportunity
from the government tocapitalize on something called
179D, which is an energyefficiency deduction which is
based on what you put into theenvelope of the building think
HVAC, think walls.
It's a little bit morecomplicated to get, but that's
(04:19):
why we're here, and it doesprovide the same benefit.
Speaker 4 (04:22):
Have you ever worked with CPACE and does CPACE play a
part in looking at the costsegregation study as a part of
how much funding you can getfrom CPACE?
Speaker 1 (04:35):
So we have not, but that typically probably
something that happens before weget involved.
We're typically post-close,except on the new home builder
side of things, where you getenergy credit for a door.
But no, we have not workeddirectly with them.
Okay, cool.
Speaker 4 (04:50):
So what are the key components of a comprehensive
cost segregation study and howdo they contribute to maximizing
tax benefits?
Speaker 1 (04:59):
So the key components to a cost segregation study I
mean I can say it three timesit's precision, precision,
precision.
But there are a lot of thingsthat go into precision.
See, the challenge with costsegregation in the cost
segregation industry is whereI'm sitting in this office in
Dallas, texas, is I couldprobably look at a property
pretty easily, really quick, andjust determine that there's X
(05:20):
number of dollars available andvalidate it in some way and go
through a few motions to get itdone and find a pretty decent
benefit for not too much of anexpense for an investor.
But the key thing to doing itright is having a high degree of
precision and measurement andhaving a lot of the data down to
the inch of what's inside thebuilding, almost treating it
like an engineering orconstruction product.
(05:40):
What's interesting about costsegregation in our business in
particular?
It's an intersection ofaccounting and construction, so
you could have somebody reversebet a job.
That's the number one.
Most important thing is thatyou have high quality detail on
the improvements that were madeto a building, even if it's not
something that's newconstruction.
If it's something that alreadyexisted, somebody bought it.
(06:00):
That's the number one piece indoing the estimation with as
much precision with the dataavailable that you have From
there, it's being able to auditit, make sure it does stand up
to the IRS criteria.
We use a 12-step system basedoff of the IRS audit guide.
Basically, when you have thevolume of auditors that you have
(06:21):
going and being attached tomultiple or being assigned to
multiple different types oftaxpayers, those auditors need
education for different nicheparts of the tax law.
What we built is basically aneducation platform whenever the
audit does come up, to be ableto give them.
Here's all the detail that youneed.
Here's the case law behind eachone of these assets and their
(06:42):
useful life.
Now you can take this and makeyour determination relatively
easily.
So precision and alignment withthe IRS audit guide are two of
the biggest things that are outthere needed, because the
precision lets you be aggressiveand the backing of the IRS
audit and doing everything inaccordance with that gives you
the confidence of knowing you'redoing it correctly and you're
(07:02):
not going to hurt your clientCool.
Speaker 4 (07:04):
So I'm curious, chris how has the phase out of bonus
depreciation and that thereduction to 60% in 2024
impacted the benefits of a costsegregation study?
Speaker 1 (07:18):
Just initially only having that percentage of bonus
for the current year and yearsprior, as it's been slowly being
phased out.
It does impact the year onebenefit those assets that are
identified for five year, sevenyear and 15 year.
They are getting those actuallives and a smaller percentage
can be taken year one, so itdoes have a cashflow impact.
(07:39):
There's been rare instanceswhere I've seen that it still
doesn't make a ton of sense todo it.
I think what people are dealingwith now is since you know
bonus is likely coming back inthe wake of the election.
People for the last six toseven months have known that
bonus is something that might becoming back and they've been
waiting to see because you know60% is still great.
(07:59):
The only challenge is it's notas great as 100%.
So when you have thepossibility of 100% it makes you
sit there and wait.
So still been very viable andbeen material for a lot of
clients.
It would be better if it was100%, but it just was not.
Speaker 4 (08:14):
So has that impacted how many studies you do People
are holding off, or do they dothe studies and then hold off on
taking the depreciation I've?
Speaker 1 (08:23):
seen both the first piece people probably are also.
You know it's been a little bitin an election year as well, as
you know interest rates.
There has been some uncertainty.
That's just one of the pieces.
What we've done for a lot ofour clients to add certainty.
Where there is uncertainty iswe would do the study now,
because when you do a good costsegregation study, you should
actually do a site visit.
I talked a lot about precision,but the site visit is key and
(08:46):
there's a limited number ofresources in all accounting and
tax.
That's not untrue with costsegregation as well.
So what we've done for peoplewho want to see what happens
with bonus, to see if it comesback, is we engaged to do the
study.
We did it at the current rateof bonus depreciation and if it
passes for the next tax year wewill redo the redo for free.
(09:09):
That way people have it done.
It's already in the bag and ifwe need to add bonus, it's a
simple calculation.
Speaker 4 (09:15):
Well, that works, and so you and I have spoken before
and I related instance wheresomeone I know had said that why
do cost segregation if you'renot doing improvements?
And there was a misconception,based on what I know now, in
regards to cost segregation.
(09:36):
What are the most commonmisconceptions that the market
has or owners of real estatehave?
Speaker 1 (09:42):
That's a very common viewpoint too, because the
reality is there are a goodamount of misconceptions and
they started with when costsegregation was currently first
thrown out into the market.
It was a completely differentoffering First.
It was really expensive to getdone, there was a high
materiality threshold on thebuilding and there were certain
(10:03):
elements that made it morerestrictive.
So maybe all the improvementscould be considered, especially
if you already bought anexisting building and you were
remodeling.
Take that to today, where allthe misconceptions exist because
they aren't real, but they'rereal because they were something
that somebody experienced yearsago and doesn't realize that it
changed.
So two one of them is yeah, Ionly can do this on new property
(10:23):
.
I can only do it on things thatI'm actually buying, which is
not true.
The IRS has an engineeringmethod which allows you to
estimate improvements that weremade prior to you buying it, to
truly segregate it out versusone property.
Another one is that it can beextremely expensive.
I'm always blown away by costsegregation is typically the ROI
and a cost segregation expensesusually at a minimum, 10 to one
(10:47):
the return and the tax savingsthat comes with it, and just
because of the course of timeand with COVID, it's been able
to be, you know, be doneremotely, to be done in a way
that you know requires much lesstime investment, much less
people investment, much lesstravel, which is great for
taxpayers because they can getthe benefit.
The other one was that it reallyonly applies to industrial or
(11:10):
complex properties, which isalso not true.
Our business does thousands ofsingle family home properties
that are just rental propertiesfor somebody.
Really, anything in real estateis something that's out there
that is an investment, as longas it's not a $50,000 home or
something like that, where itmight not make sense, where it's
going to make up for the fee.
But usually, you know, ourfloor is somewhere around
(11:31):
$150,000, $200,000 in basis andanything above that.
That's a real estate investmentproperty that generates income.
It's eligible for cost tech.
I think a lot of people lookpast that Awesome.
Speaker 4 (11:42):
So I'm curious, chris , and that is how can property
owners effectively balance theimmediate tax savings from cost
segregation with potentialfuture depreciation, recapture
liabilities?
Speaker 1 (11:59):
So recapture is something and I would have
included that in one of mymisconceptions as well, because
recapture on its own soundsterrifying, like the word
capture now I'm going to redo itagain so I think it already
brings with it this fearassociated with it.
I think it's not necessarilywarranted, because depreciation
even if you don't do a costsegregation, there's an element
(12:21):
of it's similar to recapture.
The output is the same when youdo sell a property, the
depreciation that you've alreadytaken you can't keep
depreciation forever essentially, so outweigh the benefits.
What you're really looking athere in a deduction for a cost
segregation is you are gettingthrough this instrument, getting
cash.
Currently today, and those ofyou who don't know what
(12:42):
recapture is, as you own theasset year after year, part of
that actually does depreciateand the asset goes away and it
reduces your basis.
If you sell that propertybefore that asset is fully
depreciated, then you have tobasically give that depreciation
back.
What I look at in that case isto say how do you balance it out
(13:05):
?
Well, it's a simple costbenefit analysis.
Or, for those of us who want togo back to our finance classes
which I'd really have to wake upand have an extra set of coffee
on is look at it as a financialinstrument of net present value
.
How much money do I have now?
What's the current interestrate?
What's the expense to do it?
What's the NPV on it?
Even if you hold a property fora year your five-year assets you
(13:26):
depreciate it.
You got 20% of it.
Your seven-year, you gotone-seventh.
Your 15-year, you gotone-fifteenth.
As you go to sell that property, if you took accelerated
depreciation on those assets,you got all that money today.
You got it right now and as aninvestor that's very valuable.
Now the key thing in recaptureis you have to pay penalty, you
have to pay interest.
Now I just have to give backthe depreciation I did not take.
(13:50):
So even in that state you stillget a little bit of
depreciation.
But the biggest value you gotis for a very nominal fee to do
the cost segregation.
You effectively got a loan andsomebody paid you for the loan
versus you paying for the loan.
You got to use that forsomething else.
That's why when I look atrecapture, I almost look at it
like a 401k.
It's almost deferring the taxyou have to pay and you're using
(14:12):
depreciation as a means to notpay it now.
And for that reason, I think alot of people look at it and say
recapture, it's terrifying.
No-transcript capital.
Speaker 4 (14:35):
I agree, but many CPAs have no idea about what
they are talking about as itrelates to cost segregation.
How do we speak to the CPAsthat are listening to this
podcast regarding costsegregation and how to
communicate that to theirclients that are coming to them
for advice?
Do they take classes?
(14:56):
Do they come to you?
What would you recommend CPAsdo?
Speaker 1 (15:00):
So CPAs, I think, have one of the hardest jobs in
the world.
That's why it's hard toincrease the talent pool of CPAs
out there, because it's sostinking hard.
I mean, a lot of us can't getthrough it in college just to
get to the point where we caneven take a CPA exam.
And then you know, the goalpostis always moving up, the laws
(15:20):
are always changing.
I get it.
It's challenging.
You know.
Recapture is one of thosethings that I think when a CPA
looks at it, they're trying tomanage expectations of a
customer.
And so when they look atsomething in the near term and
somebody tells them you get abenefit of X number 100,000 or X
number a million dollars, andthe full story is if you plan on
(15:41):
selling this property in a yearor two, then you're not going
to get all of that.
That's not the full benefit.
But I would recommend CPAs.
I don't think they need to takeclass.
I would love to be a resourceto any CPAs.
We support over 11,000 CPAs atCost Segregation Authority.
We're the back office for costsegregation, so I think we could
definitely help if anybody hasthose questions.
(16:02):
But what I always like to do ishave a conversation to figure
out, not just.
We have to move away fromrecapture is bad and recapture
is good.
The reality is recapture isrecapture and I want to note for
individual CPA why are youconcerned about it for this
particular client?
And they might have a very goodreason, because everybody's tax
situation is completelydifferent.
But to dismiss it unilaterallyas something that you should or
(16:26):
should not worry about is wrong.
So what I like to do, and thisis we do CPEs where we're
certified to do CPEs by NASBA,and this is one of the biggest
things we always talk about.
Whenever I just come up with aCPA, I ask them what are you
concerned about it?
And they typically describe why.
Then I ask them to tell me whatrecapture is, and I think when
you really define recapture,write down the words.
Tell me what recapture is and Ithink when you really define
recapture, write down the wordsit is the recapturing of a tax
(16:47):
benefit you got for depreciationthat you took.
You ultimately did not see allthe way through.
That is money, up front moneyat the beginning.
I would encourage them just toreframe it.
But also, please do feel freeto reach out to me as a resource
and you will see I won't try tojam a cost stick down your
throat, but I will try to helpdefine the situation.
It might be, here's the benefit.
But if there is a recapture,you need to look at as a not a
(17:07):
permanent benefit.
It's a benefit that you get nowand if you're an investor,
they're going to be very happyabout that and thank you as
their CPA that you didn't shoveit away when they could have had
money right there.
Speaker 4 (17:17):
I appreciate that explanation.
And so, when individuals arethinking about doing cost
segregation, when would you, orthe individuals that work for
you, tell a potential customerthat, no, it just does not make
sense?
What are those situations?
Speaker 1 (17:36):
So the situations where it wouldn't make too much
sense is one of the ones Imentioned earlier if the cost of
the property is just too low.
Or if the cost of the propertyis just too low, if somebody,
let's say they got it through anestate or something like that,
who knows, or on an auctionblock and they paid $50,000 for
(17:57):
a rental property, the amount ofdepreciation you're going to
get with the tax benefit it'sgoing to eat into it.
If the fee is going to make itnot make a lot of sense.
I think $180,000, $200,000around there is where you start
to say, okay, if I've paid thisamount for a property, then I
can use that from a standpointbasis to depreciate and it will
make economic sense for me topay somebody to do that.
Otherwise it would not.
(18:18):
The other one really boils downto if you're going to be
flipping a property as well.
If it's something that you wantto buy and sell three, four or
five months from now, I don'treally think that's a good idea.
To do a cost segregation on,take this accelerated
depreciation only to sell it inthe same tax years a few months
later, that doesn't make toomuch sense either.
And of course, for those whohaven't had too much experience
(18:39):
with cost segregation, youobviously can't use this as your
main source of living.
If you live in a property youcan't cost segregate it.
But for the most part those aresome of the biggest ones that I
think I would say rule out.
The rest of them, I think it'sat least looking into to see if
there is opportunity.
Speaker 4 (18:56):
I'm curious, chris, because this just came up to my
head, is how long would aninvestment group or investors or
owners hold a property thatthey've done cost segregation on
?
What would be the maximumbenefit of a hold period?
What would that hold period be?
Speaker 1 (19:15):
bonuses involved.
Because, as you can imagine, ifyou take all the depreciation
in year one, it begins tocompletely flip in the latter
years.
Where I see the biggest benefitis really around that three to
five-year mark.
And the reason why is when youdo a cost segregation you've
heard me say now a couple oftimes five years, seven years,
15 years those five-year assetsare where you get the most value
(19:39):
from, because number one, it'sa lot more accelerated
depreciation, but there'stypically a lot of things it's.
One of the biggest things we'relooking for is let's find
five-year assets Usually it'ssomewhere in the range of 30% to
40% that we can use andreclassify as a five-year asset.
When doing that, if you areholding a period for three to
five years, you're getting thebulk of that depreciation
(20:06):
without having to worry aboutrecapture on those five-year
assets.
So if you are an investor andyou're thinking, okay, what
about my whole period?
It really would be fitting withthat three to five year where
you can get a pretty big benefit, fully depreciate those
five-year assets and only havesome recapture on the 715, where
you can get your largest bangfor your buck.
Speaker 4 (20:24):
So what would be an example of a cost segregation
study that you've done this year, that the ownership group or
the owner was extremely pleasedwith the outcome of it?
Speaker 1 (20:37):
Sure, extremely pleased with the outcome of it.
Sure, so it was this one'sinteresting because it's there
was a lot of improvements onthis one.
One of the things people don'trealize is, even if they don't
own the actual physical space.
Take a restaurant, for instance, and you have this restaurateur
who finds their space and theyjust load the place with
improvements, they put in tonsof plumbing, they put in, you
(20:58):
know, everything it takes to runa restaurant with improvements.
They put in tons of plumbing,they put in everything it takes
to run a restaurant stovetopsand all of that.
In this one case, going intothe detail of each one of these,
going through the receipts,going through the invoices,
we're able to identify in thisrestaurant, because all the
plumbing and everything thatwent into it, that was attached,
the material that was necessaryfor the use of the business, it
was around 40% and these werenot small improvements and it
(21:20):
was four restaurants that theyjust bought.
I mean it was total four and ahalf million for each, so 16
million.
You take that 40%, you can seefound $4 million in accelerated
depreciation.
Also, what was happening isinteresting.
The last four or five years ofCOVID and everything.
I think we've all seen this asthere's been a.
There was obviously a major dipin hospitality, then a boom in
(21:42):
hospitality and a lot of ourclients are these large
hospitality resorts who areconstantly changing things,
making improvements.
You know we have one client whoowns multiple of these resorts
who had to invest a lot inimprovements this year that are
just kind of like recurringthings, like changing the
outside veneer of the businessand those pieces $8 million this
(22:04):
property here, $10 million inaccelerated appreciation in this
property here.
There was a large, large amountof those and the others would
be, and I only asked for one.
But I've touched a good amount.
Some of the most recent ones issome large accounting firms
think like big four type folks.
There's a cost segregationelement to their business.
(22:24):
It's not the primary element ofwhat they do.
We've recently done what youcall a come from behind cost
segregation.
So if somebody did it before,cost segregation is one of those
things that's nice.
Even if somebody else did it, itdoesn't mean you can't do it,
especially if the tax year isstill active.
Even if somebody else did it,it doesn't mean you can't do it,
especially if the tax year isstill active.
And so we've done a couple ofthose and in one case we found
another 32% for a pretty highbasis just by going and redoing
(22:46):
it, and in this case we didn'tcharge a fee because we
obviously want to get thebusiness to the client.
But whenever you find moremoney when somebody was already
happy, I think that's the bestoutcome you can look for.
In that case, it was amultifamily property that
somebody had and it was just amatter of oh yeah, you didn't
classify these in the right spot.
You used this wrong case lawhere to justify this asset and,
(23:10):
yeah, it was great to see.
Speaker 4 (23:14):
Always love to save money and give it back to our
investors, which is nice, and sowhat question have I not asked
you that?
You know, our audienceabsolutely must know.
Speaker 1 (23:28):
Sure, the one thing that I would really want to
throw in there I mentioned itjust slightly at the beginning
so cost segregation is I thinkwe've hit on pretty well, but
the energy efficiency market,specifically for developers.
I think this is one of thoseareas which there's been some
activity in, but it's gotten wayless.
And the reality is theInflation Reduction Act did a
(23:55):
disservice to the energyefficiency play that was
available to builders anddevelopers.
Something that was intended toincentivize green building and
green development and togenerate more housing has
actually kind of crushed them alittle bit, and I do think parts
of that's going to be changing,but the parts that are still
available.
So you have a 179B and 45L.
45l is something that's a perdoor energy credit which
(24:18):
potentially could impact some ofyour investors, but until the
law changes any multifamily,it's not going to be worth the
cost to do it unless you payprevailing wages and
apprenticeships, everybodyinvolved in the development of
the project, and I just don'tthink anybody's doing that.
So I would put that one to theside for now and say let's see
if prevailing wages goes away.
(24:38):
179d, though 179D isinteresting because in both
cases Inflation Reduction Acttook a benefit and they
multiplied it times 300% andsaid, hey, we made the benefit
so much better, aren't we great?
The only problem is it'd belike sitting in a group of a
bunch of people who are fivefeet tall and say I will give
you $20 million so you can dunka basketball.
(24:59):
Okay, I'm going to get ahundred million.
They still couldn't dunk thebasketball For 45L.
That's what happened For 179D.
It also happened a little bit,but for 179D they gave people an
out and so anybody listeningwho has built any type of
facility and they beganconstruction before 2023 and the
property went into service into2023 and beyond.
(25:19):
The benefit went from a dollarand change to $5.60 a square
foot and you are exempted fromhaving to pay prevailing wages
if you started constructionbefore 2023.
There's a lot of people sittingon this massive, massive
deduction.
They can take right now thatare exempt from prevailing wages
but don't even realize it.
Take right now that are exemptfrom prevailing wages but don't
(25:43):
even realize it.
And what 179D is?
It is an energy efficiency taxdeduction that requires certain
standards are met for LEDlighting, for walls, insulation
and also HVAC unit.
The way you go about gettingthis deduction is within the law
.
You have to use a third party,so it cannot be an entity tied
to your business.
You also have to have somebodywho is a professional engineer
licensed in the state where theproperty is located.
(26:04):
So if you own three propertiesin three states, you better find
somebody with a lot ofcertifications.
I can tell you we have 48 ofthem, so there's only three that
we could support you on rightnow.
But you also have to get energymodeling done.
That energy modeling has to bevalidated by that individual and
also they have to walk thefacility to validate the
modeling and sign off on it as aprofessional engineer and that
gets you the deduction.
It's interesting that taxeshave been so tied into green and
(26:29):
to labor but as a result I'vehad to hire somebody who's an
energy star expert who kind ofbecame a tax expert in the
process.
So that's the big piece and Iwould encourage anybody in your
podcast who wants to explorethat, especially if you fit in
that exemption that can betacked on to a cost segregation
and both 17090 and costsegregation, even if you bought
(26:51):
a property in the past and youhaven't capitalized on it yet.
Both of these things do notrequire to amend a return.
They have what's calledcatch-up depreciation.
There's a form that can befilled out.
We actually filled it out foryour CPA, I think, to support
11,000 CPAs you could imagine weget a lot of pushback saying
can you fill out some of theseforms for us?
It's not too late.
And that was one of the piecesI would say to your other
(27:12):
question, john, was when itmight not make sense.
If you owned a property for 25years, you probably mostly
depreciated the assets for thosetimes.
But if you're, still, say,within like a seven, eight, nine
, maybe even 10-year window,depending on what you paid for
(27:33):
it there, could still be a lotto go get and you don't have to
move powder and earth to get it.
Speaker 4 (27:36):
Oh, fascinating information, chris.
I wanted you on the showbecause I had no idea myself.
I'm not a tax expert, butmeeting you and having you speak
at the conference really openedmy eyes and I'm always looking
for individuals like yourselfthat can come onto the show and
educate our owners, ourinvestors, families that own
(27:57):
buildings, multifamily, whateverit may be.
But thank you so much and onceagain, tell us about your
company.
How do they get a hold of you?
What's your website address sothat they can get a hold of you?
For 17090, or cost segregationstudies or a combination of the
both.
Speaker 1 (28:15):
Sure, so we're Cost Segregation Authority.
Cost Segregation Authority myEast Texas makes me say it all
as one word Cost SegregationAuthority.
We're based in Utah, so justaround the Lehigh area of about
80 folks.
Again, this is all we do.
Cost Segregation Authority isthe website
costsegregationauthoritycom,just to get access.
There is a contact us form onthere.
(28:35):
But also I'll say my emailreally quick as well.
You can email me directly andI'll get you to the right person
Cstreet S-T-R-E-I-T.
At costsegauthoritycom.
Speaker 4 (28:50):
Cool.
Thank you so much.
Appreciate it and thisinformation is very valuable and
I appreciate your time today,Chris.
Speaker 1 (28:58):
Awesome, really appreciate you, john.
Thank you for the time.
Thank you for having me on.
For really anybody who has a real estate investment
property, something thatgenerates income they benefit
from cost segregation.
But somebody in the seniorliving space has even more
opportunity because somebody inthis space is typically
investing a lot in improvementsin a property.
There's a lot of stuff insidewhat you would call the building
envelope.
One of the biggest impacts thatcost segregation provides
(00:28):
somebody in that space is animprovement to cash flow through
accelerated depreciation.
So your living facility takesan asset that can be depreciated
over the course of 39 years andtaking a small portion every
year and rapidly takingimprovements and moving them
into five, seven and 15-yearcategories all at once and
taking the benefit of thatdepreciation now.
(00:51):
So that way the money isavailable to be used now as an
investor.
You can use it to make furtherimprovements on the building or
to go buy another property.
Speaker 2 (01:04):
Welcome to the Senior Housing Investors Podcast.
If you are an owner operator,investor, developer or buyer of
senior housing, you've come tothe right place.
The best way to stay connectedwith us is to sign up for our
weekly newsletter athavenseniorinvestmentscom.
This podcast doesn't existwithout you, our community.
(01:26):
Thank you for listening andreach out to us anytime.
Speaker 3 (01:35):
Welcome back everyone .
Today, our host, john Haber, isspeaking with the CEO of Cost
Segregation Authority, chrisStreet.
Cost segregation services areone of the most effective ways
to free up liquidity and improvecash flow.
If you own a qualifyingcommercial or residential rental
property and you're currentlypaying taxes, cost segregation
(01:56):
is likely to provide significanteconomic benefit for you.
Listen in to hear how CostSegregation Authority is
increasing cash flows for theircustomers.
John.
Speaker 4 (02:08):
Elsie.
Thank you very much, Chris.
Welcome to the show.
Thank you, it's good to haveyou on and good to get to know
you at the last show we were at,and so tell us a little bit
about yourself and your companyand we'll go from there.
Speaker 1 (02:25):
Yeah, sure so, chris Stried, thank you for having me
on, john, it's definitely apleasure getting to meet you.
I work at a firm CostSegregation Authority.
We pretty much just do onething, which is cost segregation
, but also energy efficiency,tax credit, all tied to real
estate, real estate investmentsand maximizing tax incentives
for those people who do investin real estate and for those
(02:45):
people who develop real estate.
Speaker 4 (02:48):
Awesome, and how does that benefit the senior living
space?
Speaker 1 (02:53):
Well, you know.
So interesting enough, really,anybody who has a real estate
investment property, somethingthat generates income, they
benefit from cost segregation.
But somebody in the seniorliving space has even more
opportunity because somebody inthis space is typically
investing a lot in improvementsin a property.
There's a lot of stuff insidewhat you would call the building
(03:13):
envelope.
So one of the biggest impactsthat cost segregation provides
somebody in that space with thattype of focus and investment
strategy is an improvement tocash flow through accelerated
depreciation.
Cost segregation in particularis a way of taking something
that in the case, so your oilingfacility takes an asset that
(03:34):
can be depreciated over thecourse of 39 years and taking a
small portion every year andrapidly taking improvements and
moving them into five, seven and15-year categories all at once
and taking the benefit of thatdepreciation now.
So that way the money isavailable to be used now.
As an investor, you can use itto make further improvements on
the building or to go buyanother property.
(03:56):
It's really one of the key waysto generate additional cashflow
.
And those people who developthese types of facilities, in
addition to cost segregation,they have a lot of opportunity
from the government tocapitalize on something called
179D, which is an energyefficiency deduction which is
based on what you put into theenvelope of the building think
HVAC, think walls.
It's a little bit morecomplicated to get, but that's
(04:19):
why we're here, and it doesprovide the same benefit.
Speaker 4 (04:22):
Have you ever worked with CPACE and does CPACE play a
part in looking at the costsegregation study as a part of
how much funding you can getfrom CPACE?
Speaker 1 (04:35):
So we have not, but that typically probably
something that happens before weget involved.
We're typically post-close,except on the new home builder
side of things, where you getenergy credit for a door.
But no, we have not workeddirectly with them.
Okay, cool.
Speaker 4 (04:50):
So what are the key components of a comprehensive
cost segregation study and howdo they contribute to maximizing
tax benefits?
Speaker 1 (04:59):
So the key components to a cost segregation study I
mean I can say it three timesit's precision, precision,
precision.
But there are a lot of thingsthat go into precision.
See, the challenge with costsegregation in the cost
segregation industry is whereI'm sitting in this office in
Dallas, texas, is I couldprobably look at a property
pretty easily, really quick, andjust determine that there's X
(05:20):
number of dollars available andvalidate it in some way and go
through a few motions to get itdone and find a pretty decent
benefit for not too much of anexpense for an investor.
But the key thing to doing itright is having a high degree of
precision and measurement andhaving a lot of the data down to
the inch of what's inside thebuilding, almost treating it
like an engineering orconstruction product.
(05:40):
What's interesting about costsegregation in our business in
particular?
It's an intersection ofaccounting and construction, so
you could have somebody reversebet a job.
That's the number one.
Most important thing is thatyou have high quality detail on
the improvements that were madeto a building, even if it's not
something that's newconstruction.
If it's something that alreadyexisted, somebody bought it.
(06:00):
That's the number one piece indoing the estimation with as
much precision with the dataavailable that you have From
there, it's being able to auditit, make sure it does stand up
to the IRS criteria.
We use a 12-step system basedoff of the IRS audit guide.
Basically, when you have thevolume of auditors that you have
(06:21):
going and being attached tomultiple or being assigned to
multiple different types oftaxpayers, those auditors need
education for different nicheparts of the tax law.
What we built is basically aneducation platform whenever the
audit does come up, to be ableto give them.
Here's all the detail that youneed.
Here's the case law behind eachone of these assets and their
(06:42):
useful life.
Now you can take this and makeyour determination relatively
easily.
So precision and alignment withthe IRS audit guide are two of
the biggest things that are outthere needed, because the
precision lets you be aggressiveand the backing of the IRS
audit and doing everything inaccordance with that gives you
the confidence of knowing you'redoing it correctly and you're
(07:02):
not going to hurt your clientCool.
Speaker 4 (07:04):
So I'm curious, chris how has the phase out of bonus
depreciation and that thereduction to 60% in 2024
impacted the benefits of a costsegregation study?
Speaker 1 (07:18):
Just initially only having that percentage of bonus
for the current year and yearsprior, as it's been slowly being
phased out.
It does impact the year onebenefit those assets that are
identified for five year, sevenyear and 15 year.
They are getting those actuallives and a smaller percentage
can be taken year one, so itdoes have a cashflow impact.
(07:39):
There's been rare instanceswhere I've seen that it still
doesn't make a ton of sense todo it.
I think what people are dealingwith now is since you know
bonus is likely coming back inthe wake of the election.
People for the last six toseven months have known that
bonus is something that might becoming back and they've been
waiting to see because you know60% is still great.
(07:59):
The only challenge is it's notas great as 100%.
So when you have thepossibility of 100% it makes you
sit there and wait.
So still been very viable andbeen material for a lot of
clients.
It would be better if it was100%, but it just was not.
Speaker 4 (08:14):
So has that impacted how many studies you do People
are holding off, or do they dothe studies and then hold off on
taking the depreciation I've?
Speaker 1 (08:23):
seen both the first piece people probably are also.
You know it's been a little bitin an election year as well, as
you know interest rates.
There has been some uncertainty.
That's just one of the pieces.
What we've done for a lot ofour clients to add certainty.
Where there is uncertainty iswe would do the study now,
because when you do a good costsegregation study, you should
actually do a site visit.
I talked a lot about precision,but the site visit is key and
(08:46):
there's a limited number ofresources in all accounting and
tax.
That's not untrue with costsegregation as well.
So what we've done for peoplewho want to see what happens
with bonus, to see if it comesback, is we engaged to do the
study.
We did it at the current rateof bonus depreciation and if it
passes for the next tax year wewill redo the redo for free.
(09:09):
That way people have it done.
It's already in the bag and ifwe need to add bonus, it's a
simple calculation.
Speaker 4 (09:15):
Well, that works, and so you and I have spoken before
and I related instance wheresomeone I know had said that why
do cost segregation if you'renot doing improvements?
And there was a misconception,based on what I know now, in
regards to cost segregation.
(09:36):
What are the most commonmisconceptions that the market
has or owners of real estatehave?
Speaker 1 (09:42):
That's a very common viewpoint too, because the
reality is there are a goodamount of misconceptions and
they started with when costsegregation was currently first
thrown out into the market.
It was a completely differentoffering First.
It was really expensive to getdone, there was a high
materiality threshold on thebuilding and there were certain
(10:03):
elements that made it morerestrictive.
So maybe all the improvementscould be considered, especially
if you already bought anexisting building and you were
remodeling.
Take that to today, where allthe misconceptions exist because
they aren't real, but they'rereal because they were something
that somebody experienced yearsago and doesn't realize that it
changed.
So two one of them is yeah, Ionly can do this on new property
(10:23):
.
I can only do it on things thatI'm actually buying, which is
not true.
The IRS has an engineeringmethod which allows you to
estimate improvements that weremade prior to you buying it, to
truly segregate it out versusone property.
Another one is that it can beextremely expensive.
I'm always blown away by costsegregation is typically the ROI
and a cost segregation expensesusually at a minimum, 10 to one
(10:47):
the return and the tax savingsthat comes with it, and just
because of the course of timeand with COVID, it's been able
to be, you know, be doneremotely, to be done in a way
that you know requires much lesstime investment, much less
people investment, much lesstravel, which is great for
taxpayers because they can getthe benefit.
The other one was that it reallyonly applies to industrial or
(11:10):
complex properties, which isalso not true.
Our business does thousands ofsingle family home properties
that are just rental propertiesfor somebody.
Really, anything in real estateis something that's out there
that is an investment, as longas it's not a $50,000 home or
something like that, where itmight not make sense, where it's
going to make up for the fee.
But usually, you know, ourfloor is somewhere around
(11:31):
$150,000, $200,000 in basis andanything above that.
That's a real estate investmentproperty that generates income.
It's eligible for cost tech.
I think a lot of people lookpast that Awesome.
Speaker 4 (11:42):
So I'm curious, chris , and that is how can property
owners effectively balance theimmediate tax savings from cost
segregation with potentialfuture depreciation, recapture
liabilities?
Speaker 1 (11:59):
So recapture is something and I would have
included that in one of mymisconceptions as well, because
recapture on its own soundsterrifying, like the word
capture now I'm going to redo itagain so I think it already
brings with it this fearassociated with it.
I think it's not necessarilywarranted, because depreciation
even if you don't do a costsegregation, there's an element
(12:21):
of it's similar to recapture.
The output is the same when youdo sell a property, the
depreciation that you've alreadytaken you can't keep
depreciation forever essentially, so outweigh the benefits.
What you're really looking athere in a deduction for a cost
segregation is you are gettingthrough this instrument, getting
cash.
Currently today, and those ofyou who don't know what
(12:42):
recapture is, as you own theasset year after year, part of
that actually does depreciateand the asset goes away and it
reduces your basis.
If you sell that propertybefore that asset is fully
depreciated, then you have tobasically give that depreciation
back.
What I look at in that case isto say how do you balance it out
(13:05):
?
Well, it's a simple costbenefit analysis.
Or, for those of us who want togo back to our finance classes
which I'd really have to wake upand have an extra set of coffee
on is look at it as a financialinstrument of net present value
.
How much money do I have now?
What's the current interestrate?
What's the expense to do it?
What's the NPV on it?
Even if you hold a property fora year your five-year assets you
(13:26):
depreciate it.
You got 20% of it.
Your seven-year, you gotone-seventh.
Your 15-year, you gotone-fifteenth.
As you go to sell that property, if you took accelerated
depreciation on those assets,you got all that money today.
You got it right now and as aninvestor that's very valuable.
Now the key thing in recaptureis you have to pay penalty, you
have to pay interest.
Now I just have to give backthe depreciation I did not take.
(13:50):
So even in that state you stillget a little bit of
depreciation.
But the biggest value you gotis for a very nominal fee to do
the cost segregation.
You effectively got a loan andsomebody paid you for the loan
versus you paying for the loan.
You got to use that forsomething else.
That's why when I look atrecapture, I almost look at it
like a 401k.
It's almost deferring the taxyou have to pay and you're using
(14:12):
depreciation as a means to notpay it now.
And for that reason, I think alot of people look at it and say
recapture, it's terrifying.
No-transcript capital.
Speaker 4 (14:35):
I agree, but many CPAs have no idea about what
they are talking about as itrelates to cost segregation.
How do we speak to the CPAsthat are listening to this
podcast regarding costsegregation and how to
communicate that to theirclients that are coming to them
for advice?
Do they take classes?
(14:56):
Do they come to you?
What would you recommend CPAsdo?
Speaker 1 (15:00):
So CPAs, I think, have one of the hardest jobs in
the world.
That's why it's hard toincrease the talent pool of CPAs
out there, because it's sostinking hard.
I mean, a lot of us can't getthrough it in college just to
get to the point where we caneven take a CPA exam.
And then you know, the goalpostis always moving up, the laws
(15:20):
are always changing.
I get it.
It's challenging.
You know.
Recapture is one of thosethings that I think when a CPA
looks at it, they're trying tomanage expectations of a
customer.
And so when they look atsomething in the near term and
somebody tells them you get abenefit of X number 100,000 or X
number a million dollars, andthe full story is if you plan on
(15:41):
selling this property in a yearor two, then you're not going
to get all of that.
That's not the full benefit.
But I would recommend CPAs.
I don't think they need to takeclass.
I would love to be a resourceto any CPAs.
We support over 11,000 CPAs atCost Segregation Authority.
We're the back office for costsegregation, so I think we could
definitely help if anybody hasthose questions.
(16:02):
But what I always like to do ishave a conversation to figure
out, not just.
We have to move away fromrecapture is bad and recapture
is good.
The reality is recapture isrecapture and I want to note for
individual CPA why are youconcerned about it for this
particular client?
And they might have a very goodreason, because everybody's tax
situation is completelydifferent.
But to dismiss it unilaterallyas something that you should or
(16:26):
should not worry about is wrong.
So what I like to do, and thisis we do CPEs where we're
certified to do CPEs by NASBA,and this is one of the biggest
things we always talk about.
Whenever I just come up with aCPA, I ask them what are you
concerned about it?
And they typically describe why.
Then I ask them to tell me whatrecapture is, and I think when
you really define recapture,write down the words.
Tell me what recapture is and Ithink when you really define
recapture, write down the wordsit is the recapturing of a tax
(16:47):
benefit you got for depreciationthat you took.
You ultimately did not see allthe way through.
That is money, up front moneyat the beginning.
I would encourage them just toreframe it.
But also, please do feel freeto reach out to me as a resource
and you will see I won't try tojam a cost stick down your
throat, but I will try to helpdefine the situation.
It might be, here's the benefit.
But if there is a recapture,you need to look at as a not a
(17:07):
permanent benefit.
It's a benefit that you get nowand if you're an investor,
they're going to be very happyabout that and thank you as
their CPA that you didn't shoveit away when they could have had
money right there.
Speaker 4 (17:17):
I appreciate that explanation.
And so, when individuals arethinking about doing cost
segregation, when would you, orthe individuals that work for
you, tell a potential customerthat, no, it just does not make
sense?
What are those situations?
Speaker 1 (17:36):
So the situations where it wouldn't make too much
sense is one of the ones Imentioned earlier if the cost of
the property is just too low.
Or if the cost of the propertyis just too low, if somebody,
let's say they got it through anestate or something like that,
who knows, or on an auctionblock and they paid $50,000 for
(17:57):
a rental property, the amount ofdepreciation you're going to
get with the tax benefit it'sgoing to eat into it.
If the fee is going to make itnot make a lot of sense.
I think $180,000, $200,000around there is where you start
to say, okay, if I've paid thisamount for a property, then I
can use that from a standpointbasis to depreciate and it will
make economic sense for me topay somebody to do that.
Otherwise it would not.
(18:18):
The other one really boils downto if you're going to be
flipping a property as well.
If it's something that you wantto buy and sell three, four or
five months from now, I don'treally think that's a good idea.
To do a cost segregation on,take this accelerated
depreciation only to sell it inthe same tax years a few months
later, that doesn't make toomuch sense either.
And of course, for those whohaven't had too much experience
(18:39):
with cost segregation, youobviously can't use this as your
main source of living.
If you live in a property youcan't cost segregate it.
But for the most part those aresome of the biggest ones that I
think I would say rule out.
The rest of them, I think it'sat least looking into to see if
there is opportunity.
Speaker 4 (18:56):
I'm curious, chris, because this just came up to my
head, is how long would aninvestment group or investors or
owners hold a property thatthey've done cost segregation on
?
What would be the maximumbenefit of a hold period?
What would that hold period be?
Speaker 1 (19:15):
bonuses involved.
Because, as you can imagine, ifyou take all the depreciation
in year one, it begins tocompletely flip in the latter
years.
Where I see the biggest benefitis really around that three to
five-year mark.
And the reason why is when youdo a cost segregation you've
heard me say now a couple oftimes five years, seven years,
15 years those five-year assetsare where you get the most value
(19:39):
from, because number one, it'sa lot more accelerated
depreciation, but there'stypically a lot of things it's.
One of the biggest things we'relooking for is let's find
five-year assets Usually it'ssomewhere in the range of 30% to
40% that we can use andreclassify as a five-year asset.
When doing that, if you areholding a period for three to
five years, you're getting thebulk of that depreciation
(20:06):
without having to worry aboutrecapture on those five-year
assets.
So if you are an investor andyou're thinking, okay, what
about my whole period?
It really would be fitting withthat three to five year where
you can get a pretty big benefit, fully depreciate those
five-year assets and only havesome recapture on the 715, where
you can get your largest bangfor your buck.
Speaker 4 (20:24):
So what would be an example of a cost segregation
study that you've done this year, that the ownership group or
the owner was extremely pleasedwith the outcome of it?
Speaker 1 (20:37):
Sure, extremely pleased with the outcome of it.
Sure, so it was this one'sinteresting because it's there
was a lot of improvements onthis one.
One of the things people don'trealize is, even if they don't
own the actual physical space.
Take a restaurant, for instance, and you have this restaurateur
who finds their space and theyjust load the place with
improvements, they put in tonsof plumbing, they put in, you
(20:58):
know, everything it takes to runa restaurant with improvements.
They put in tons of plumbing,they put in everything it takes
to run a restaurant stovetopsand all of that.
In this one case, going intothe detail of each one of these,
going through the receipts,going through the invoices,
we're able to identify in thisrestaurant, because all the
plumbing and everything thatwent into it, that was attached,
the material that was necessaryfor the use of the business, it
was around 40% and these werenot small improvements and it
(21:20):
was four restaurants that theyjust bought.
I mean it was total four and ahalf million for each, so 16
million.
You take that 40%, you can seefound $4 million in accelerated
depreciation.
Also, what was happening isinteresting.
The last four or five years ofCOVID and everything.
I think we've all seen this asthere's been a.
There was obviously a major dipin hospitality, then a boom in
(21:42):
hospitality and a lot of ourclients are these large
hospitality resorts who areconstantly changing things,
making improvements.
You know we have one client whoowns multiple of these resorts
who had to invest a lot inimprovements this year that are
just kind of like recurringthings, like changing the
outside veneer of the businessand those pieces $8 million this
(22:04):
property here, $10 million inaccelerated appreciation in this
property here.
There was a large, large amountof those and the others would
be, and I only asked for one.
But I've touched a good amount.
Some of the most recent ones issome large accounting firms
think like big four type folks.
There's a cost segregationelement to their business.
(22:24):
It's not the primary element ofwhat they do.
We've recently done what youcall a come from behind cost
segregation.
So if somebody did it before,cost segregation is one of those
things that's nice.
Even if somebody else did it, itdoesn't mean you can't do it,
especially if the tax year isstill active.
Even if somebody else did it,it doesn't mean you can't do it,
especially if the tax year isstill active.
And so we've done a couple ofthose and in one case we found
another 32% for a pretty highbasis just by going and redoing
(22:46):
it, and in this case we didn'tcharge a fee because we
obviously want to get thebusiness to the client.
But whenever you find moremoney when somebody was already
happy, I think that's the bestoutcome you can look for.
In that case, it was amultifamily property that
somebody had and it was just amatter of oh yeah, you didn't
classify these in the right spot.
You used this wrong case lawhere to justify this asset and,
(23:10):
yeah, it was great to see.
Speaker 4 (23:14):
Always love to save money and give it back to our
investors, which is nice, and sowhat question have I not asked
you that?
You know, our audienceabsolutely must know.
Speaker 1 (23:28):
Sure, the one thing that I would really want to
throw in there I mentioned itjust slightly at the beginning
so cost segregation is I thinkwe've hit on pretty well, but
the energy efficiency market,specifically for developers.
I think this is one of thoseareas which there's been some
activity in, but it's gotten wayless.
And the reality is theInflation Reduction Act did a
(23:55):
disservice to the energyefficiency play that was
available to builders anddevelopers.
Something that was intended toincentivize green building and
green development and togenerate more housing has
actually kind of crushed them alittle bit, and I do think parts
of that's going to be changing,but the parts that are still
available.
So you have a 179B and 45L.
45l is something that's a perdoor energy credit which
(24:18):
potentially could impact some ofyour investors, but until the
law changes any multifamily,it's not going to be worth the
cost to do it unless you payprevailing wages and
apprenticeships, everybodyinvolved in the development of
the project, and I just don'tthink anybody's doing that.
So I would put that one to theside for now and say let's see
if prevailing wages goes away.
(24:38):
179d, though 179D isinteresting because in both
cases Inflation Reduction Acttook a benefit and they
multiplied it times 300% andsaid, hey, we made the benefit
so much better, aren't we great?
The only problem is it'd belike sitting in a group of a
bunch of people who are fivefeet tall and say I will give
you $20 million so you can dunka basketball.
(24:59):
Okay, I'm going to get ahundred million.
They still couldn't dunk thebasketball For 45L.
That's what happened For 179D.
It also happened a little bit,but for 179D they gave people an
out and so anybody listeningwho has built any type of
facility and they beganconstruction before 2023 and the
property went into service into2023 and beyond.
(25:19):
The benefit went from a dollarand change to $5.60 a square
foot and you are exempted fromhaving to pay prevailing wages
if you started constructionbefore 2023.
There's a lot of people sittingon this massive, massive
deduction.
They can take right now thatare exempt from prevailing wages
but don't even realize it.
Take right now that are exemptfrom prevailing wages but don't
(25:43):
even realize it.
And what 179D is?
It is an energy efficiency taxdeduction that requires certain
standards are met for LEDlighting, for walls, insulation
and also HVAC unit.
The way you go about gettingthis deduction is within the law
.
You have to use a third party,so it cannot be an entity tied
to your business.
You also have to have somebodywho is a professional engineer
licensed in the state where theproperty is located.
(26:04):
So if you own three propertiesin three states, you better find
somebody with a lot ofcertifications.
I can tell you we have 48 ofthem, so there's only three that
we could support you on rightnow.
But you also have to get energymodeling done.
That energy modeling has to bevalidated by that individual and
also they have to walk thefacility to validate the
modeling and sign off on it as aprofessional engineer and that
gets you the deduction.
It's interesting that taxeshave been so tied into green and
(26:29):
to labor but as a result I'vehad to hire somebody who's an
energy star expert who kind ofbecame a tax expert in the
process.
So that's the big piece and Iwould encourage anybody in your
podcast who wants to explorethat, especially if you fit in
that exemption that can betacked on to a cost segregation
and both 17090 and costsegregation, even if you bought
(26:51):
a property in the past and youhaven't capitalized on it yet.
Both of these things do notrequire to amend a return.
They have what's calledcatch-up depreciation.
There's a form that can befilled out.
We actually filled it out foryour CPA, I think, to support
11,000 CPAs you could imagine weget a lot of pushback saying
can you fill out some of theseforms for us?
It's not too late.
And that was one of the piecesI would say to your other
(27:12):
question, john, was when itmight not make sense.
If you owned a property for 25years, you probably mostly
depreciated the assets for thosetimes.
But if you're, still, say,within like a seven, eight, nine
, maybe even 10-year window,depending on what you paid for
(27:33):
it there, could still be a lotto go get and you don't have to
move powder and earth to get it.
Speaker 4 (27:36):
Oh, fascinating information, chris.
I wanted you on the showbecause I had no idea myself.
I'm not a tax expert, butmeeting you and having you speak
at the conference really openedmy eyes and I'm always looking
for individuals like yourselfthat can come onto the show and
educate our owners, ourinvestors, families that own
(27:57):
buildings, multifamily, whateverit may be.
But thank you so much and onceagain, tell us about your
company.
How do they get a hold of you?
What's your website address sothat they can get a hold of you?
For 17090, or cost segregationstudies or a combination of the
both.
Speaker 1 (28:15):
Sure, so we're Cost Segregation Authority.
Cost Segregation Authority myEast Texas makes me say it all
as one word Cost SegregationAuthority.
We're based in Utah, so justaround the Lehigh area of about
80 folks.
Again, this is all we do.
Cost Segregation Authority isthe website
costsegregationauthoritycom,just to get access.
There is a contact us form onthere.
(28:35):
But also I'll say my emailreally quick as well.
You can email me directly andI'll get you to the right person
Cstreet S-T-R-E-I-T.
At costsegauthoritycom.
Speaker 4 (28:50):
Cool.
Thank you so much.
Appreciate it and thisinformation is very valuable and
I appreciate your time today,Chris.
Speaker 1 (28:58):
Awesome, really appreciate you, john.
Thank you for the time.
Thank you for having me on.
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