August 29, 2024 • 42 mins
How can a biblical story inspire a successful career in real estate investing? Join us on the Conscious Investor podcast as we welcome Yona Weiss, a leading expert in cost segregation and a key figure at Madison Spex. Yona shares his incredible journey from being a teacher to becoming an influential figure in the real estate world, all while maintaining a commitment to serving a higher purpose. Learn how his unique approach to education has empowered investors to maximize their tax benefits and enhance their investment strategies.
Ready to unlock the secrets of accelerating tax deductions? Our discussion with Yona dives deep into the intricacies of cost segregation, an advanced depreciation strategy that can significantly improve cash flow for property owners. We break down the changes brought about by the 2017 Tax Cuts and Jobs Act, including the introduction and phase-out of 100% bonus depreciation. The conversation also explores the future of this provision and its implications for real estate investors, ensuring you stay ahead of the curve.
As the landscape of real estate investing continues to evolve, strategic planning and risk management have never been more critical. Yona sheds light on the enduring relevance of cost segregation, even as interest rates rise and tax laws change. Discover how proactive measures, like petitioning for lower property taxes, can safeguard your investments. We also demystify the concept of depreciation recapture and highlight how cost segregation can be a powerful tool for everyone, from seasoned investors to those managing short-term rentals like Airbnbs. Don't miss the valuable insights on working with a tax advisor to optimize these benefits and bolster your investment strategy.
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Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Speaker 1 (00:02):
Hello Conscious Investor and welcome back.
I'm your host, julie Hawley.
For over four years, I'vepaired my background in real
estate, investing, education andcoaching to create powerful
content for you each week.
This podcast is where we take aholistic approach to investing
by focusing on three ingredientsto a life of personal freedom
health, mindset and wealth.
(00:23):
We'll talk about everythingfrom passive investing through
syndication and how to use yourretirement accounts to boost
your investing, to mineralbalancing and gut brain health,
and into topics that cultivateyour inner strength and
resilience so you can thriveregardless of any of life's
current events.
And yes, those are all episodescurrently available and linked
(00:44):
in the show notes below.
Join me each Monday for amindset episode and later in the
week for an interview withexpert investors and health
professionals, so that you canexperience your greatest health,
strongest mindset and build thewisest wealth.
Yona, I'm just so happy to haveyou back on the Conscious
(01:06):
Investor podcast.
Thank you for coming.
Speaker 2 (01:10):
It's been a while.
Thank you for having me.
I'm grateful to be back.
Speaker 1 (01:14):
Yeah, it has been a while since you've been on the
show, so, conscious Investor,you want to make sure you go
back, listen to that, and one ofthe cool things about listening
to these past episodes is thatyou get to see how we've grown,
how we've evolved, and and thenyou're also going to see a
through line how we've alsoremained constant, consistent
and steadfast, and so I I likethe combination.
Speaker 2 (01:36):
I love it and I.
What's amazing to me is Iremember, you know, we met, I
think, right around the timejust before you launched your
podcast, close to five years ago, and that's just amazing to see
how you've grown and how thepodcast and the platform and
everything has grown and come towhat it is today.
So I'm grateful to be along forthe ride.
Speaker 1 (02:00):
It's always a joy, and I could not think of someone
better.
There are so many things takingplace in the real estate
investing space, and that's notnew.
That's the norm.
The norm is something'schanging and I couldn't think of
a better person to come on andspeak with a conscious investor
about hey, what are we doingwith cost segregation and what
(02:23):
does this landscape look likeright now and what is it going
to look like.
But we cannot go there becauseI haven't asked the question.
And, conscious Investor, I feltyou asking that question.
I totally felt it so, before Ijumped the gun, we're just over.
I'm like, oh, I'm so used to,you know, just enjoying time
with you.
Let's see.
Let's ask the question of allquestions what, what do you do
(02:48):
and how did you get started?
Speaker 2 (02:52):
Well, you know, I could.
I could take this in acompletely different direction.
You can do whatever you want,you know because I, what I, I do
it's funny because there's uh,my name is is yona, which is the
hebrew version of jonah, whichmany people from the bible are
(03:13):
familiar with.
That story, right, and weactually read it once a year in
our jewish tradition, on yomkippur, the holiest day of the
year and the, when jonah was onthe boat before they threw him
off to be swallowed by the whaleright or the fish, whatever it
was, they asked him who are you,where are you from?
(03:35):
What is your occupation?
Right?
And?
And?
And.
Speaker 1 (03:41):
he answered Exactly what they asked him.
That's so great.
I've never thought of it likethat.
Speaker 2 (03:45):
Well, when you asked me that question, that's
immediately what came into mymind, because it was the same
two questions that were asked tomy namesake, and he didn't
answer them the way that onemight expect.
And so that's what I'm going todo to you is I'm going to
answer it in a way that youmight not expect.
And he said, and I'm going todo to you is I'm going to answer
(04:07):
it in a way that you might notexpect.
And he said and I'm going tosay in Hebrew first, because
it's easier for me to translateit after I actually say it in
the original he said, whichmeans I am a Jew, right, I'm
Ivri, which was the originalname that came from the other
side, and the God of the heavenand earth, I fear, like that's,
I serve God and that's who I am,and that's what I do.
(04:30):
They asked for his occupation,right, what do you do?
Speaker 1 (04:34):
And that's what he said.
So he asked me.
Speaker 2 (04:35):
What do I do?
That's what I do.
That's what I try to do, atleast on a daily basis,
practically speaking, for myincome.
I am a cost segregation expert,which means I work for the
biggest national company thatdoes cost segregation Madison
Spex and we serve thousands,tens of thousands really, of
(04:58):
investors across the country inthis capacity, in this service.
And how did I get started inthat?
Well, I'm not going to answerthe first part because that
would be too long, but thesecond part how did I get
started?
And I actually grew up.
I grew up, but I started out asa teacher for many years and
then, about nine years ago, Igot into the real estate space
(05:22):
and, from one thing to another,I ended up being introduced to
this company, madison, and theywere looking for a business
development.
I didn't really know the firstthing about cost segregation at
the time and don't have abackground in accounting or
engineering, which is what it'sabout.
Again, my background was inteaching and I really came in
and filled the role to help growthe company through an
(05:45):
educational aspect.
And really that's what I'vebeen doing over the years is
just really educating peopleabout this topic people don't
know much about, and once youlearn about it, it's essentially
a no-brainer to use it if youneed it, and so that's kind of
my approach.
Speaker 1 (06:01):
Okay, I love all of this.
And I have to go back to Jonah,because because I, I I love the
old testament, consciousinvestor.
You've heard me actually saylike I don't want to have a
jonah moment.
You know, like in the sense ofuh, relating this part of the
story where I'm like I don'tever want to find myself out of
vertical alignment with thesovereign god, like I could have
(06:23):
a propensity to maybe, maybejust go ahead and do the people
over there.
They're kind of I don't likethem.
They're kind of jerks, like I'mlike I have some of that
realness in me too.
I'm like we're all human right.
So, I'm kind of like I don'twant to have that Jonah moment
where I not surrendering towhatever the plans are that God
(06:44):
has, or even to that, even tothe, the mercy and the kindness
and love that God wants to showthrough people.
So I'm like, oh, okay, let menot have, let me not, you know,
have to get thrown into theoceans to learn to go back and
do so.
I'm like'm like I, that's oneof my favorite accounts because
(07:08):
it's such human nature, soabsolutely I want to say thank
you for bringing that up yeah,it's incredible those questions
that you asked just immediately.
That's where my head went, soand it and it immediately goes,
and I didn't't know that Yonahwas translated to Jonah, so
that's like really cool.
Speaker 2 (07:29):
Exactly.
There's no J in the Hebrewlanguage, so every name that you
know that's a J from the Bibleactually is.
It's really with a Y andsomewhat similar to that.
Speaker 1 (07:41):
I'm glad Cause now I just learned new and I
appreciate that and I love that.
We both have backgrounds ineducation and I feel like over
the years, it's been like alittle kindred spirit between us
, like how do we educate, how dowe serve?
He does such a powerful job.
You bring so many peopletogether.
In fact, I recently connectedone of my good friends with you
and that was through theLinkedIn challenge that you,
(08:03):
that you, host.
So I'm going to give a littlebonus plug here.
Conscious Investor, if you'retrying to level up your LinkedIn
game, you need to go followYona and participate in his
10-day challenge, because youlearn so much.
It's such a great thing.
Speaker 2 (08:20):
Thank you.
Yeah, it's a lot of fun.
Speaker 1 (08:23):
It's pretty crazy cool.
Oh, thank you.
Yeah, it's a lot of fun, it'spretty crazy cool.
So let's dive into because Icould go off onto all these
little tangents because they'reso fun and you're so gracious.
Let's dive into costsegregation.
Let's say, let's just start atthe simple form what the heck is
cost segregation and why doessomebody want it in their life?
Speaker 2 (08:45):
Right.
What does it?
Does it mean?
Like, why do I want?
What do I have to do withsegregation?
You know these days it's aweird name, right, and
essentially what it is is anadvanced form of depreciation.
So that's what I have to thinkabout it.
And depreciation is a taxdeduction.
Anytime you buy any propertybesides for your primary
residence, the IRS allows you todeduct from your income taxes a
(09:07):
portion of the value of aproperty.
It's called depreciation andover a 27 and a half year period
for residential properties or39 year period for commercial
properties, you're literallyable to write off the entire
value.
So you think about this you buya property, you're able to
write it off like a taxwrite-off for your income taxes,
but you can't do it all at once, so it's like a little bit
(09:31):
every single year.
Cost segregation is taking thattax benefit, that tax advantage,
and accelerating it andessentially front-loading some
of those deductions to theearlier years of ownership.
And the way it's done isthrough again this weird name,
cost segregation.
We're segregating the cost.
The cost means the value of theproperty Bought.
It, let's say bought, you know,for a million dollars.
(09:51):
So now we're going to break itdown into different categories.
We're going to segregate thatand say that the structure or
the structural components of theproperty depreciate over this
long 27 and a half year period.
But certain things likefurniture, appliances, fixtures,
carpeting, flooring, cabinets,countertops, anything that's
(10:11):
non-structural depreciates overa five-year schedule.
And so we're segregating, we'reessentially breaking it out
from one whole and putting itinto different buckets, which
allows you then to take thesedeductions at a faster rate,
which in turn increases yourcashflow by, you know, obviously
, not paying taxes, you're gonnahave more money in your pocket
(10:33):
to then, you know, use toreinvest.
So, nutshell right, justGreedier's Digest version, it's
the name of a tax deduction thatallows you to create more
deductions during the earlyyears of ownership, creating
more cashflow.
Speaker 1 (10:47):
So that's such a simple way of putting all of it.
So let's go back.
You've been doing this, youknow you've been doing this for
nine years.
So like where, what changeshave you seen over over this
period of time?
Like, what have we alreadywitnessed?
And then let's talk about whatare we seeing happening right
(11:08):
now.
What are we?
Speaker 2 (11:09):
seeing happening right now.
Yeah, so I got involved withCOSIC just about seven years ago
, but the biggest thing thathappened shortly after I started
doing it was something called100% bonus depreciation, and
this was part of the tax reformthat happened during the Trump
administration in 2017.
It was called the Tax Cuts andJobs Act.
It was the biggest tax reformfor about 40 years.
(11:31):
It was called the Tax Cuts andJobs Act.
It was the biggest tax reformfor about 40 years.
Now, cost segregation itself hasbeen around in various forms
for about 40, 50 years, but this100% bonus depreciation
basically put it on steroidsExcuse the analogy but
essentially saying that onceyou've done a cost segregation
(11:52):
study and broken out theproperty into these different
categories of five year, sevenyear, 15 year essentially these
things that can depreciatefaster you now have the option
to take 100% of thoseaccelerated deductions in the
first year.
Okay, so essentially, gettingthat lump sum all up front
instead of just more beneficialover the years.
So that was the biggestdifference that's happened that
(12:14):
I've seen and that was huge forthe industry.
I think a lot of people gotinto real estate, especially the
syndication world, during thattime, you know, between 2017 and
you know 2021, 22, where the100% bonus was applied, and then
in the books, when it wasenacted that law, it actually
had a phase out, which means in2023, it went down to 80%, and
(12:39):
then in 2024, currently, at thetime of this recording, it's
down to 60%, which means you canonly take 60% of those
accelerated deductions in thefirst year.
So you still get a big lump sumupfront in terms of those tax
deductions, but not assignificant as you having it all
upfront, and so that's that was, at least for me, the biggest
(13:00):
you know by far difference.
That's happened in the tax codeand there has been talk about
bringing it back to the 100%,but nothing has actually
officially happened in terms ofthat.
Speaker 1 (13:14):
I feel like I've heard the conversations taking
place on Capitol Hill andthey're talking about it, but
there is no final conclusiveresolution.
Everyone's all of us realestate investors are like bring
it back, bring it back.
Speaker 2 (13:26):
Yeah, because we know how powerful it is.
Right.
We have seen firsthand what itmeans to pay zero in income tax
and basically use that to helpgrow your wealth by reinvesting.
It's been an extremely powerfultool.
Now I will say that it wasbrought up.
It was part of a bill that waspassed in the House this past
(13:50):
January, so it's actually gottenmore than just talk.
It was in legislation.
However, it never went to theSenate to even be voted on that
bill.
It passed with a huge majorityin the House but again, that
bill was a whole like family taxreduction act, something like
that, and it never went even tothe Senate for a vote.
So it may.
The fact that it's being talkedabout to bring it back, uh, is
(14:13):
a good thing, because maybe ifthere is a change of
administration next year, theremay be something to talk about.
Speaker 1 (14:22):
So let's talk about what the future looks like If,
if nothing does take place,let's talk about then what's the
landscape of the future.
Speaker 2 (14:30):
The landscape of the future for the cost seg is,
first of all, like I said it'sbeen around for decades and it
will continue to be around fordecades.
There's no inkling of it goingaway entirely.
However, the bonus depreciationcomponent, which was a huge
boost to the investors for thatbig tax deduction, is continuing
to phase out.
(14:50):
So next year 2025, we'll thengo down to 20% bonus, or sorry,
40% the year after 20, and then2027, we'll be back down to
square one, where it was beforethe tax reform.
So again, cost seg has beenaround for a while, will
continue to be around for awhile, but won't have as big as
a kick, you know, as it did withthe bonus depreciation.
Speaker 1 (15:12):
I think that's one of the really important things.
Yes, the bonus depreciation islike absolutely amazing, because
most people are not holdingthese commercial real estate,
the multifamily, any commercialreal estate for you know, 30
years or longer.
Most people are holding themfor now five to seven years, and
so being able to utilize thatis really powerful.
(15:34):
But to just remember that thecost segregation is still going
to be around.
It has been around, that's notgoing away.
It's this bonus depreciationand maybe in the next couple of
years there will be a meeting ofthe minds and everybody will be
really excited again andinterest rates will be back.
Speaker 2 (15:54):
Right, exactly, and that's what I was going to say.
It's the whole market and we'vebeen feeling it as real estate
investors that the whole markethas been affected over the past
couple of years with the rise ofinterest rates.
And people are feeling it.
And I just heard today,literally from someone who is
very, very deeply involved inthe commercial mortgage space,
that something big is happening.
(16:16):
Like you know, defaults arecoming in in, you know, way
beyond what people even expected, and so you know the we haven't
even seen the worst of it yet,which is what my feeling is.
And will it come back?
Who knows?
We can't predict the future,but we can, you know, plan for
what we have and, you know, dealwith the cards we dealt with.
Speaker 1 (16:38):
This is a shared philosophy that Yona and I have
is live your best life right now, like, make good choices, live
your life, yeah, and it will beinteresting.
I have thought for yearsinteresting and I have thought
for for years.
I have actually said um, thatthe commercial real estate space
in the, you know, leading into2020, so, like 2017, up until
(17:00):
you know, interest rates rising.
It reminded me of theresidential real estate space in
the early two thousands leadinginto the oh eight crash.
And so if we see, you saw, itcoming a little bit.
You know it.
Just it felt like you know,when you know a storm's coming
in and there's just a certainway that all of the air feels
(17:22):
and everything it's like.
That's what I felt, like I hadtransitioned at that time into
the commercial real estateinvesting space and I'm like huh
.
Actually, now that I've been inthis for a couple of years,
this seems really oddly familiar, like familiar territory, let
me, and so I proceeded verycautiously with all of my
(17:43):
investing, because I wasparticularly on guard and like a
fixed rate, long term debtcheck, like let's just make sure
we're set on some of thesethings.
If something goes sideways wewill be okay, but yeah, I won't
be too surprised if we do seesome.
Speaker 2 (18:02):
Yeah, I mean, unfortunately, you know,
investing has risks that comealong with it, not beyond the
bridge, debt and these floatingrates and things like that.
There are other risks that areinherently involved and
sometimes there's really nothingyou can do about it.
And we want to be a consciousinvestor and really put to work
(18:28):
our money the best we can andsolid investments that have at
least perceived lower risk,right, but you know, potential
upside with a higher rewards, uh, but in the end of the day, uh,
you know I hate to, I hate tosay this, but it's unfortunately
things happen and beyond ourcontrol, and I'm just sharing
(18:49):
personally for the first time.
I just had a call this weekwith a GP, a general partner,
for an investment that I putmoney into as a limited partner,
passive investor, right, andyou think you're a passive
investor.
It's very passive, right?
What do you do?
You do your due diligence onthe sponsor, who happened to be
a good friend of mine, so Ididn't have any problem with
(19:10):
that.
And we had a call this week thatstuff's happening in the
property that are completelybeyond control.
You know, like totally out of,nothing to do with debt, nothing
to do with the mortgage, likezero, but things that are
completely beyond control, thatare affecting the investment,
and you know what.
You have to deal with it.
So what am I doing?
As a passive investor thatdoesn't want to lose my money,
(19:35):
I'm trying to get more activelyinvolved to see if there's
anything I can do personally tohelp salvage not only my own
investment but everyone else's.
What can we do to make thiswork?
And it's something you don'treally think about, but you know
, sometimes you gotta, you gottastep up to the plate.
Speaker 1 (19:53):
Yeah, this is, this is true, and I I really
appreciate and this is you havesuch a kind heart and I
appreciate that, yeah, things dohappen that are outside of
people's control, that you couldnever have predicted.
I think one thing that and Isay this cautiously, conscious
investor, because we don't knowbut but when I look to the
(20:13):
future and I've been saying thisfor a couple of years I
anticipate taxes to increase.
And so how are we, how are welooking at our taxes?
And this is why costsegregation is so important and
understanding it.
It's like if the tax base goesup, if they are raising our
property taxes, that's going todirectly affect the performance
(20:34):
of everything, and there havebeen instances I've heard of
this already happening andpeople, teams going in
petitioning and they've beenable to be successful with their
petitions to say, wait, youcan't raise our tax out much.
I mean whoa, but it is a realpossibility.
Speaker 2 (20:53):
Yeah.
Speaker 1 (20:54):
And it's.
Speaker 2 (20:54):
you know, real estate is a business like anything
else, and so you have to beaware of potential risks and
deal with it in the mostpractical way.
So yeah, if you can petitionyour county assessor in your
county to get your property taxdown, do it.
You know it's definitelysomething that can be done.
Speaker 1 (21:13):
So it's a good idea.
It definitely is.
Let's go back.
Let's go back to Costig and I'dlove to know for the conscious
investor, if you just walk usthrough, what does that process
look like?
So the conscious investor mighthave some smaller assets of
their own.
Subconscious investor, Like alot of you, have a single family
(21:34):
or a duplex or a quad orsomething, and you're also
invested passively in large.
You know commercial real estateinvestments.
You can utilize cost seg andyou might not have known that.
So can we walk the consciousinvestor through?
What does that process looklike?
Speaker 2 (21:51):
Absolutely.
The first thing we always liketo do is obviously just have a
conversation, understand what aperson's portfolio may look like
, but we run a free upfrontanalysis or estimate to show any
property that you've owned orinvest in that, what the
potential of doing a costsegregation could save you on
taxes versus what you're justtaking the normal straight line
depreciation deduction year.
Invest in that, what thepotential of doing a cost
(22:11):
segregation could save you ontaxes versus what you're just
taking the normal straight linedepreciation deduction year
after year, which most people doand what most accountants are
just aware of.
So that's the first step and sothat really gives you, you know
, first of all, first andforemost, an education, just
understanding what is this goingto look like and what's the
difference between doing this ornot doing it, and so that's a
(22:33):
very powerful tool.
And then the process in termsof getting an actual cost
variation study done is anengineer coming to the property
and analyzing everything in itand, like I said, breaking down
the components of the propertyand it used to be called, by the
way, component depreciation,which makes a lot more sense.
Speaker 1 (22:50):
I didn't know that, yeah, component depreciation,
which makes a lot more sense.
I didn't know that.
Yeah, component depreciation.
How interesting.
Speaker 2 (22:57):
Right, like makes so much more sense than cost
segregation.
Right, because that's exactlywhat we're doing.
We're saying, okay, thisdepreciates this component on a
five-year schedule and this oneon a 15, and this one 27.
And so that's what we do.
No-transcript.
(23:39):
The IRS has a ridiculous amountof rules surrounding, so they
have this thing called the CostIrremediation Audit Techniques
Guide, which is on the IRS'swebsite.
You can check it out if you'reinterested in learning more, and
I highly recommend it forreading, especially if you have
insomnia, it's great, that wouldhelp you.
(23:59):
But the truth be told, jokesaside, it's something that, for
someone who owns a single family, if the property was purchased
for over $200,000, that's whereit really starts to make sense,
because there is a fee involvedthat usually minimally costs
about $3,000 or $4,000 or so toget a cost duration study done,
(24:20):
a full engineering report, etc.
20 to 30% of your property'svalue that you can take as
accelerated depreciationdeductions.
You start getting like 10 Xvalue when you're you know it's
(24:41):
a 200,000 and up.
So, yes, this can be done onsingle family, can be done on
multifamily.
Any type of property.
You know we're talking selfstorage, office, industrial
retail.
You know, golf course, whateveryou name it, car washes, any
type of property whatsoever aslong as it's not your primary
residence.
And so we have a lot ofinvestors, a lot of clients that
own short-term rentals, airbnbs, and this has become obviously
(25:03):
very popular over the past 10years or so, and it's one of
probably I'd say one of the mostoverlooked asset classes for
cost seg, simply because it's aninvestment property and
typically Airbnb's havesignificantly higher cash flow
than a long term rental would,and therefore, because there's
(25:25):
more cash flow, there's going tobe more tax liability, and so
to be able to use a strategylike cost seg to reduce that and
so therefore, creating moreincome with the investment
property and also having it be,you know, essentially tax free
is, you know, a great kind ofcombination.
Speaker 1 (25:43):
That's amazing and I have to.
Candidly, one of my bestfriends just came to mind and
I'm like she has a coupleAirbnbs.
I'm like I wonder if she's donethat yet.
I need to reach out to her.
I need to make sure you guysare connected.
If she hasn't, this is going tobe kids.
It will increase the cashflow.
That's powerful.
Speaker 2 (26:03):
Yeah, extremely.
Speaker 1 (26:06):
So I'm curious what is it that you know?
That you know a lot, but let meask this question a different
way.
What are some of the thingsthat you find surprising that
most people don't know aboutcost seg or an assumption that
they erroneously make that couldlead to some problems.
Speaker 2 (26:29):
I come across a lot, believe it or not, and not just
from you know, people who happento own properties, but even
from accountants who aresupposedly supposed to be in
your best interests, looking outfor your best interest in terms
of your taxes.
Well, unfortunately they're.
They're not always.
You know, many accountants arejust you know, I hate to say
this but just kind of pencilpushers, you know, looking at
(26:50):
punching numbers and filling outforms, which which is great and
uh, but they're not necessarilytax strategists and looking out
to be proactive, to see whatother types of deductions, what
other strategies you can use.
And but in terms of going backto your question about
misconceptions or about thingspeople just are unaware of, one
thing is probably one of thebiggest is that people think you
(27:11):
have to do the cost seg in thefirst year of you buy a property
, and it's simply not the case.
If you own a property for anumber of years, as long as it's
profitable and it meets thecriteria, then you can go back
and actually, without evenhaving to amend previous year's
tax returns, you can go back andcatch up your missed
depreciation.
So if you own a property for afew years and never knew about
(27:33):
cost seg.
You can go back.
Now it does.
Once you've owned a propertyfor, let's say, 10 years or more
, you've already taken so muchdepreciation that there's not
much left with to accelerate.
So it just, practicallyspeaking, doesn't always make
sense at that point.
But if you own a property forless than that, it's worthwhile
to look, you know, to actually,you know, get an estimate and
(27:55):
see does it make sense, is itgoing to benefit?
So that's one of the biggestones.
Speaker 1 (28:00):
Is there any area of kind of like the gotcha that
happens to you know people usingcost seg?
Speaker 2 (28:08):
Oh yeah, there are, and unfortunately this comes
about by people talking aboutcost seg without providing all
the details right of what, whathappens you know, for example,
or who this can benefit the most, etc.
So there are couple of things Iwant to point out here which
don't get talked about enough.
The first one is what's calledthe real estate professional
status, and this is essentiallymeans that if you are not a
(28:35):
full-time real estateprofessional okay, which means
either you or your spouse,either one of you is not
full-time as a you know, realtoror investor, operator, etc then
the benefits of cost seg anddepreciation in general are
limited to only offset yourpassive, or what the irs deems
passive, rental property income.
Okay, there's a few other typesof passive income, but it's not
(28:58):
stocks, by the way, in caseyou're wondering, his stocks is
not considered passive in theirs size, um, for this
perspective.
And so that's a huge thing,because a lot of people think,
oh, I'm going to buy aninvestment property and I've
heard literally I've heard guruson the internet, you know, on
TikTok or whatever not TikTok,because I don't watch TikTok,
but you know what I mean.
Like Instagram, you see thethings.
Speaker 1 (29:17):
That's made on Instagram.
Speaker 2 (29:19):
And they're talking about oh yeah, buy a property
and then you won't ever paytaxes again.
Well, unfortunately, if you'renot a real estate professional,
you can only use thosedeductions from cost seg to
offset your passive income fromyour rental properties, or
passive gain which comes on fromthe sale of a rental property
as well.
There are a couple exceptionsto that rule, now.
(29:39):
Obviously the first andforemost, if you're a real
estate professional or yourspouse, is you can use it freely
, meaning you can use it tooffset your active or your W-2
or any other source of incomewhatsoever, and that is probably
why cost seg has been sopowerful.
Now, don't get me wrongOffsetting your passive income
by itself is, in of itself, ahuge benefit.
I mean, think about any othertype of investment out there
(30:03):
that you can put, you know, putmoney in, get returns on that
and actually not pay taxes onthat either.
Okay, so, yes, there's oil andgas is similar to that, but
there are very, you know, almostno other investment vehicles
that you can, essentially,during the whole period of the
property you know, get a taxfree income from it.
So that's, that's first andforemost.
So it's still beneficialregardless.
(30:25):
The second thing I want to bringup which also doesn't get
talked about a lot and maybe alittle confusing for a lot of
people, but it's somethingcalled depreciation, recapture,
and it sounds scary, but it'snot, because recapture doesn't
mean what it sounds like,similar to depreciation, right?
I like to throw this out there,because depreciation is not
negative.
It sounds like a negative thing.
(30:46):
It's literally a borrowed term.
It just means it's the name ofthe tax deduction, as if your
property was going down in value.
It's not so.
Recapture tax is the name of atax.
When you sell a property,you're going to be subject to
this tax.
That says any amount ofdepreciation taken to this tax.
That says any amount ofdepreciation taken you're now
(31:07):
going to be taxed on upon thesale.
The good news is good news,right, because it's important to
understand how this works andmost people don't.
And I think part of the gotchayou asked about, like the gotcha
, is that the gotcha is.
People think it's a gotcha, butin many cases it's not.
So people talk about you goinglike bigger pockets and they say
you, you never do a cost sakebecause, recapture, you're going
to pay it all back when yousell.
(31:28):
And that's not true.
Simply put, it doesn't meanyou're paying it back, means
you're subject to a tax on theamount you took.
But there are many ways toeither defer or further reduce
or offset that recapture tax onthe sale, and so it just.
I don't need to necessarily getinto all those different ways
to do that, but have aconversation with your tax
(31:48):
advisor and see if there areways to reduce that or defer it
further out.
Because that's what real goodtax planning is all about is
figuring out ways to defer,deduct and figure out ways to
not pay taxes this year Because,like you said, in the future
taxes might be higher.
But what can I do today to helpme save money on taxes?
Speaker 1 (32:10):
I feel like there's just a massive mic drop, like
all the mics just dropped rightthere.
Boom, and that was.
You completely read my mind andeven went further than that.
But with the whole, you know,recapture, it doesn't get talked
about when it's spoken about.
It's spoken about in such aconvoluted way where it does.
(32:31):
So often it's like, oh no,that's the enemy, You're not
going to make anything, it'sgoing to be terrible.
And it's how about we just getthe facts and find out actually
how this works?
Because clearly, stronginvestors utilize a strategy all
the time and this is what growstheir investment portfolio by
(32:52):
leaps and bounds, because theyunderstand and they work with
their tax strategist, they workwith a great company like
Madison Spex and then they areable to get ahead.
It's so important.
Okay, Are there other elementsthat you wish everyone knew
about?
(33:12):
Cost seg, that it's like.
This is the like.
No, you really need tounderstand this.
If you could double down onanything, what would that be?
Speaker 2 (33:24):
One thing I want to bring up.
I mentioned, kind of in passing, short-term rentals.
There is and this is for a lotof those people out there who
may be who you know, theconscious investor, who may have
a high income and is notnecessarily a real estate
professional but wants tomaximize their tax benefits as
much as possible there'ssomething called the short-term
(33:44):
rental loophole, and it's notreally a loophole because it's
actually written in the tax code, but we call it that because
maybe the law was written not inthe same way, potentially, that
it's being used today, becauseAirbnbs didn't really exist 20
years ago when the law waswritten.
But essentially this says thatif you self-manage a short-term
(34:05):
rental and the average stay isless than seven days and you
materially participate andyou're actually self-managing it
and there are a couple rulesthere, but regardless you're
actually able to use cost seg tooffset your active income.
I'm just going to repeat thatbecause it's very powerful.
You're making a lot of money.
Maybe you have a W-2 highearning and you're getting hit
hard with taxes and looking forways to reduce your tax burden
(34:28):
and you're like, okay, realestate is great and this cost
sink thing is great.
And then you find out.
Well, I'm not a real estateprofessional, so I'm really
limited.
It can offset my W-2 income.
Comes along this thing calledthe short term rental.
If I go out and buy an Airbnband then do a cost, sink it and
I, you know, materiallyparticipate in self-managing it,
which may seem daunting atfirst.
But I'll be honest with you,after speaking with hundreds of
(34:51):
people who were not real estateinvestors beforehand, that did
this and are doing this, it'sreally not that hard.
Now you have to want to do it.
Okay, it has to be somethingthat you want to run.
You know an Airbnb business andit may take some time setting
up and getting the right systemsin place.
But back to the point here.
(35:12):
After that tangent, once you'vedone that, the deductions from
cost seg become activedeductions, which means you can
then offset your W-2 income.
Now that's huge.
That, to me, has literallyhundreds of people that I know
that have done this and stillworking full-time and are able
to pay little to no taxesbecause of one or two or three
(35:35):
or whatever Airbnbs that theyrent out and are literally
paying no taxes.
Speaker 1 (35:40):
I know people who that is their jam.
They love their careers andthey have a couple of short-term
rentals.
Because I can have thatshort-term rental and offset my
active income and I can managethis, this is fine.
Yeah, it's powerful.
And maybe that's why we seesuch a surge.
I have been curious about thisfor the last few years.
(36:01):
Is this why so many people aregoing into you know, the
short-term rental space, youknow, and why it's flooded?
Speaker 2 (36:07):
It's.
You know, I would say thatthere is a that is a factor.
I don't know if it's the onlyone, but you know I'm friends
with Avery Carl, who runs theshort-term shop, and she's
authored a book on biggerpockets called Short-Term Rental
Long-Term we.
She's authored a book on biggerpockets called short-term
rental long-term wealth, and sheruns she, you know she's a huge
(36:30):
real estate investor herself,but she runs the largest
short-term rental brokerage inthe country in out of Tennessee.
It's called the short-term shopand cost seg, and I'm in their
Facebook group and everything,and cost seg is huge in that
group, like everyone, and it's apush because it is true that
you can use it, and there, ifyou're not a real estate
professional, there are notreally a lot of ways that you
(36:51):
can offset your, your income,and so this is a legitimate way
to do so, and so, yeah, I thinkit's certainly a factor I don't
know how big of a factor.
Obviously there's a lot ofother things involved too, and I
mentioned earlier.
Also it's a great cash flowtool, because Airbnbs can make
three to five times the amountof cash flow that a long-term
(37:11):
rental would.
So why not?
Speaker 1 (37:14):
Yeah, yeah.
It's interesting that theshort-term rental space is
definitely an interesting space,not my personal jam, but I have
lots of friends who that'stheir jam and I say good for you
.
It's not the type of work Ipersonally want to do, and
that's why it's really importantto know what is it you want to
(37:35):
do, what's in your lane thatbrings you joy, that allows you
to sleep at night, and it'sdifferent for every single
person, and so, again, I'll highfive all my my short-term
rental friends.
Speaker 2 (37:45):
For sure, but a lot you know.
A lot of times you don't evenknow what that is until you try
right, or until you, uh, youknow, test out different things
and, like I tried fixing flipsfor you know before you know,
before I got involved in thecosting thing and I hated it.
That was like right whateveryone has to figure out what
they, you know what they like,what they don't like.
Speaker 1 (38:12):
Ah, I love that, yona .
It's always a delight to sharespace with you and I appreciate
just the simplicity which youcommunicate with your educators.
Hearts, you know, now servespeople, what has been for years,
but it really just keeps thingssimple and clear and easy to
understand and I reallyappreciate that.
I know conscious investor thishas.
There's a lot of information inhere that is going to resonate
with you, or I know you knowsomeone where this is going to
(38:35):
be a game changer for them, andso I want to encourage you to.
One, make sure you go.
We're going to do three things.
One, make sure you go follow.
Y're going to do three things.
One, make sure you go followYona over on LinkedIn.
Okay, like that's a must.
Go do that.
And then, two, please sharethis episode with that friend
that comes to mind that iscaring, and you have friends
(38:58):
that are investing in differentways, that don't know they can
do this, so just pass this alongto them, okay, know they can do
this, so just pass this alongto them, okay.
And then, three, you want tomake sure that you, yona, where
should we send them Aside fromLinkedIn?
You want to just send them toLinkedIn.
Speaker 2 (39:13):
You can send them to LinkedIn, you can go to
yonawisecom and you can find outmore about whatever else I'm
doing today as well.
I do want to make one slightcorrection not correction
addition to what you said aboutgo over to LinkedIn and follow
me.
Do not go to LinkedIn andfollow me.
Go to LinkedIn and hit theconnect button and add a note.
(39:35):
Take 10 seconds Instead ofhitting that follow.
It's so easy.
Just okay, I'm going to followthis person, follow this person,
follow, follow, follow.
You follow thousands of peopleon social media and you never
actually get to know them.
Well, guess what?
I want to get to know you.
Right?
I want to be part of thiscommunity.
If you're a friend of Julie's,you're obviously a friend of
mine as well.
And hit that connect button,add a short note doesn't take
(39:58):
more than 10 seconds and say youlistened to me, you heard me on
Julie's podcast.
That would be great.
Speaker 1 (40:08):
Please do that and, yes, connect.
I know better.
I'm like I was not using myappropriate terms and I'm glad
you were able to get us on theright track there and I know
conscious of us, or you can feelYona's heart.
This is why I had him on theshow.
This is why he's just awonderful human that is there
for you.
He advocates for people andsupports people, and you
definitely want to make surethat you're connected with Yonah
(40:29):
and, you know, just followalong and engage in all of his
posts, because they're so muchfun and the type of people that
are attracted to Yonah are thetype of people that you will
want to be around as well.
I am certain of that.
Yonona, thank you again foryour time in coming here and
just pouring into us today.
Speaker 2 (40:49):
Well, I appreciate you for having me back and
really grateful to you andeverything you do for the
community.
Speaker 1 (40:56):
Thank you so much.
Conscious Investor, remember,adventure belongs on the trail,
not in your investing and not inyour personal life.
So make sure you reach out.
If you want to learn more aboutinvesting, head over to
3keysinvestmentscom.
If you want to learn more aboutcoaching or investing, it's all
housed atIamAConsciousInvestorcom.
(41:19):
Yeah, that's an affirmation,Remember, because conscious is
tricky to spell.
It just is so.
Type in an affirmation.
Remember, because conscious istricky to spell.
It just is so.
Type in that affirmation.
I am a consciousinvestorcom andyou have access to everything
and you can connect up with methere.
Schedule time for us to chat.
Let's not be strangers.
Until next time.
Cheers to your health, mindsetand wealth.
(41:41):
Are you enjoying this episode?
Are you enjoying this episode?
Do the world a favor and helptrip the algorithm by leaving a
review, so that this contentreaches many others.
Hello Conscious Investor and welcome back.
I'm your host, julie Hawley.
For over four years, I'vepaired my background in real
estate, investing, education andcoaching to create powerful
content for you each week.
This podcast is where we take aholistic approach to investing
by focusing on three ingredientsto a life of personal freedom
health, mindset and wealth.
(00:23):
We'll talk about everythingfrom passive investing through
syndication and how to use yourretirement accounts to boost
your investing, to mineralbalancing and gut brain health,
and into topics that cultivateyour inner strength and
resilience so you can thriveregardless of any of life's
current events.
And yes, those are all episodescurrently available and linked
(00:44):
in the show notes below.
Join me each Monday for amindset episode and later in the
week for an interview withexpert investors and health
professionals, so that you canexperience your greatest health,
strongest mindset and build thewisest wealth.
Yona, I'm just so happy to haveyou back on the Conscious
(01:06):
Investor podcast.
Thank you for coming.
Speaker 2 (01:10):
It's been a while.
Thank you for having me.
I'm grateful to be back.
Speaker 1 (01:14):
Yeah, it has been a while since you've been on the
show, so, conscious Investor,you want to make sure you go
back, listen to that, and one ofthe cool things about listening
to these past episodes is thatyou get to see how we've grown,
how we've evolved, and and thenyou're also going to see a
through line how we've alsoremained constant, consistent
and steadfast, and so I I likethe combination.
Speaker 2 (01:36):
I love it and I.
What's amazing to me is Iremember, you know, we met, I
think, right around the timejust before you launched your
podcast, close to five years ago, and that's just amazing to see
how you've grown and how thepodcast and the platform and
everything has grown and come towhat it is today.
So I'm grateful to be along forthe ride.
Speaker 1 (02:00):
It's always a joy, and I could not think of someone
better.
There are so many things takingplace in the real estate
investing space, and that's notnew.
That's the norm.
The norm is something'schanging and I couldn't think of
a better person to come on andspeak with a conscious investor
about hey, what are we doingwith cost segregation and what
(02:23):
does this landscape look likeright now and what is it going
to look like.
But we cannot go there becauseI haven't asked the question.
And, conscious Investor, I feltyou asking that question.
I totally felt it so, before Ijumped the gun, we're just over.
I'm like, oh, I'm so used to,you know, just enjoying time
with you.
Let's see.
Let's ask the question of allquestions what, what do you do
(02:48):
and how did you get started?
Speaker 2 (02:52):
Well, you know, I could.
I could take this in acompletely different direction.
You can do whatever you want,you know because I, what I, I do
it's funny because there's uh,my name is is yona, which is the
hebrew version of jonah, whichmany people from the bible are
(03:13):
familiar with.
That story, right, and weactually read it once a year in
our jewish tradition, on yomkippur, the holiest day of the
year and the, when jonah was onthe boat before they threw him
off to be swallowed by the whaleright or the fish, whatever it
was, they asked him who are you,where are you from?
(03:35):
What is your occupation?
Right?
And?
And?
And.
Speaker 1 (03:41):
he answered Exactly what they asked him.
That's so great.
I've never thought of it likethat.
Speaker 2 (03:45):
Well, when you asked me that question, that's
immediately what came into mymind, because it was the same
two questions that were asked tomy namesake, and he didn't
answer them the way that onemight expect.
And so that's what I'm going todo to you is I'm going to
answer it in a way that youmight not expect.
And he said, and I'm going todo to you is I'm going to answer
(04:07):
it in a way that you might notexpect.
And he said and I'm going tosay in Hebrew first, because
it's easier for me to translateit after I actually say it in
the original he said, whichmeans I am a Jew, right, I'm
Ivri, which was the originalname that came from the other
side, and the God of the heavenand earth, I fear, like that's,
I serve God and that's who I am,and that's what I do.
(04:30):
They asked for his occupation,right, what do you do?
Speaker 1 (04:34):
And that's what he said.
So he asked me.
Speaker 2 (04:35):
What do I do?
That's what I do.
That's what I try to do, atleast on a daily basis,
practically speaking, for myincome.
I am a cost segregation expert,which means I work for the
biggest national company thatdoes cost segregation Madison
Spex and we serve thousands,tens of thousands really, of
(04:58):
investors across the country inthis capacity, in this service.
And how did I get started inthat?
Well, I'm not going to answerthe first part because that
would be too long, but thesecond part how did I get
started?
And I actually grew up.
I grew up, but I started out asa teacher for many years and
then, about nine years ago, Igot into the real estate space
(05:22):
and, from one thing to another,I ended up being introduced to
this company, madison, and theywere looking for a business
development.
I didn't really know the firstthing about cost segregation at
the time and don't have abackground in accounting or
engineering, which is what it'sabout.
Again, my background was inteaching and I really came in
and filled the role to help growthe company through an
(05:45):
educational aspect.
And really that's what I'vebeen doing over the years is
just really educating peopleabout this topic people don't
know much about, and once youlearn about it, it's essentially
a no-brainer to use it if youneed it, and so that's kind of
my approach.
Speaker 1 (06:01):
Okay, I love all of this.
And I have to go back to Jonah,because because I, I I love the
old testament, consciousinvestor.
You've heard me actually saylike I don't want to have a
jonah moment.
You know, like in the sense ofuh, relating this part of the
story where I'm like I don'tever want to find myself out of
vertical alignment with thesovereign god, like I could have
(06:23):
a propensity to maybe, maybejust go ahead and do the people
over there.
They're kind of I don't likethem.
They're kind of jerks, like I'mlike I have some of that
realness in me too.
I'm like we're all human right.
So, I'm kind of like I don'twant to have that Jonah moment
where I not surrendering towhatever the plans are that God
(06:44):
has, or even to that, even tothe, the mercy and the kindness
and love that God wants to showthrough people.
So I'm like, oh, okay, let menot have, let me not, you know,
have to get thrown into theoceans to learn to go back and
do so.
I'm like'm like I, that's oneof my favorite accounts because
(07:08):
it's such human nature, soabsolutely I want to say thank
you for bringing that up yeah,it's incredible those questions
that you asked just immediately.
That's where my head went, soand it and it immediately goes,
and I didn't't know that Yonahwas translated to Jonah, so
that's like really cool.
Speaker 2 (07:29):
Exactly.
There's no J in the Hebrewlanguage, so every name that you
know that's a J from the Bibleactually is.
It's really with a Y andsomewhat similar to that.
Speaker 1 (07:41):
I'm glad Cause now I just learned new and I
appreciate that and I love that.
We both have backgrounds ineducation and I feel like over
the years, it's been like alittle kindred spirit between us
, like how do we educate, how dowe serve?
He does such a powerful job.
You bring so many peopletogether.
In fact, I recently connectedone of my good friends with you
and that was through theLinkedIn challenge that you,
(08:03):
that you, host.
So I'm going to give a littlebonus plug here.
Conscious Investor, if you'retrying to level up your LinkedIn
game, you need to go followYona and participate in his
10-day challenge, because youlearn so much.
It's such a great thing.
Speaker 2 (08:20):
Thank you.
Yeah, it's a lot of fun.
Speaker 1 (08:23):
It's pretty crazy cool.
Oh, thank you.
Yeah, it's a lot of fun, it'spretty crazy cool.
So let's dive into because Icould go off onto all these
little tangents because they'reso fun and you're so gracious.
Let's dive into costsegregation.
Let's say, let's just start atthe simple form what the heck is
cost segregation and why doessomebody want it in their life?
Speaker 2 (08:45):
Right.
What does it?
Does it mean?
Like, why do I want?
What do I have to do withsegregation?
You know these days it's aweird name, right, and
essentially what it is is anadvanced form of depreciation.
So that's what I have to thinkabout it.
And depreciation is a taxdeduction.
Anytime you buy any propertybesides for your primary
residence, the IRS allows you todeduct from your income taxes a
(09:07):
portion of the value of aproperty.
It's called depreciation andover a 27 and a half year period
for residential properties or39 year period for commercial
properties, you're literallyable to write off the entire
value.
So you think about this you buya property, you're able to
write it off like a taxwrite-off for your income taxes,
but you can't do it all at once, so it's like a little bit
(09:31):
every single year.
Cost segregation is taking thattax benefit, that tax advantage,
and accelerating it andessentially front-loading some
of those deductions to theearlier years of ownership.
And the way it's done isthrough again this weird name,
cost segregation.
We're segregating the cost.
The cost means the value of theproperty Bought.
It, let's say bought, you know,for a million dollars.
(09:51):
So now we're going to break itdown into different categories.
We're going to segregate thatand say that the structure or
the structural components of theproperty depreciate over this
long 27 and a half year period.
But certain things likefurniture, appliances, fixtures,
carpeting, flooring, cabinets,countertops, anything that's
(10:11):
non-structural depreciates overa five-year schedule.
And so we're segregating, we'reessentially breaking it out
from one whole and putting itinto different buckets, which
allows you then to take thesedeductions at a faster rate,
which in turn increases yourcashflow by, you know, obviously
, not paying taxes, you're gonnahave more money in your pocket
(10:33):
to then, you know, use toreinvest.
So, nutshell right, justGreedier's Digest version, it's
the name of a tax deduction thatallows you to create more
deductions during the earlyyears of ownership, creating
more cashflow.
Speaker 1 (10:47):
So that's such a simple way of putting all of it.
So let's go back.
You've been doing this, youknow you've been doing this for
nine years.
So like where, what changeshave you seen over over this
period of time?
Like, what have we alreadywitnessed?
And then let's talk about whatare we seeing happening right
(11:08):
now.
What are we?
Speaker 2 (11:09):
seeing happening right now.
Yeah, so I got involved withCOSIC just about seven years ago
, but the biggest thing thathappened shortly after I started
doing it was something called100% bonus depreciation, and
this was part of the tax reformthat happened during the Trump
administration in 2017.
It was called the Tax Cuts andJobs Act.
It was the biggest tax reformfor about 40 years.
(11:31):
It was called the Tax Cuts andJobs Act.
It was the biggest tax reformfor about 40 years.
Now, cost segregation itself hasbeen around in various forms
for about 40, 50 years, but this100% bonus depreciation
basically put it on steroidsExcuse the analogy but
essentially saying that onceyou've done a cost segregation
(11:52):
study and broken out theproperty into these different
categories of five year, sevenyear, 15 year essentially these
things that can depreciatefaster you now have the option
to take 100% of thoseaccelerated deductions in the
first year.
Okay, so essentially, gettingthat lump sum all up front
instead of just more beneficialover the years.
So that was the biggestdifference that's happened that
(12:14):
I've seen and that was huge forthe industry.
I think a lot of people gotinto real estate, especially the
syndication world, during thattime, you know, between 2017 and
you know 2021, 22, where the100% bonus was applied, and then
in the books, when it wasenacted that law, it actually
had a phase out, which means in2023, it went down to 80%, and
(12:39):
then in 2024, currently, at thetime of this recording, it's
down to 60%, which means you canonly take 60% of those
accelerated deductions in thefirst year.
So you still get a big lump sumupfront in terms of those tax
deductions, but not assignificant as you having it all
upfront, and so that's that was, at least for me, the biggest
(13:00):
you know by far difference.
That's happened in the tax codeand there has been talk about
bringing it back to the 100%,but nothing has actually
officially happened in terms ofthat.
Speaker 1 (13:14):
I feel like I've heard the conversations taking
place on Capitol Hill andthey're talking about it, but
there is no final conclusiveresolution.
Everyone's all of us realestate investors are like bring
it back, bring it back.
Speaker 2 (13:26):
Yeah, because we know how powerful it is.
Right.
We have seen firsthand what itmeans to pay zero in income tax
and basically use that to helpgrow your wealth by reinvesting.
It's been an extremely powerfultool.
Now I will say that it wasbrought up.
It was part of a bill that waspassed in the House this past
(13:50):
January, so it's actually gottenmore than just talk.
It was in legislation.
However, it never went to theSenate to even be voted on that
bill.
It passed with a huge majorityin the House but again, that
bill was a whole like family taxreduction act, something like
that, and it never went even tothe Senate for a vote.
So it may.
The fact that it's being talkedabout to bring it back, uh, is
(14:13):
a good thing, because maybe ifthere is a change of
administration next year, theremay be something to talk about.
Speaker 1 (14:22):
So let's talk about what the future looks like If,
if nothing does take place,let's talk about then what's the
landscape of the future.
Speaker 2 (14:30):
The landscape of the future for the cost seg is,
first of all, like I said it'sbeen around for decades and it
will continue to be around fordecades.
There's no inkling of it goingaway entirely.
However, the bonus depreciationcomponent, which was a huge
boost to the investors for thatbig tax deduction, is continuing
to phase out.
(14:50):
So next year 2025, we'll thengo down to 20% bonus, or sorry,
40% the year after 20, and then2027, we'll be back down to
square one, where it was beforethe tax reform.
So again, cost seg has beenaround for a while, will
continue to be around for awhile, but won't have as big as
a kick, you know, as it did withthe bonus depreciation.
Speaker 1 (15:12):
I think that's one of the really important things.
Yes, the bonus depreciation islike absolutely amazing, because
most people are not holdingthese commercial real estate,
the multifamily, any commercialreal estate for you know, 30
years or longer.
Most people are holding themfor now five to seven years, and
so being able to utilize thatis really powerful.
(15:34):
But to just remember that thecost segregation is still going
to be around.
It has been around, that's notgoing away.
It's this bonus depreciationand maybe in the next couple of
years there will be a meeting ofthe minds and everybody will be
really excited again andinterest rates will be back.
Speaker 2 (15:54):
Right, exactly, and that's what I was going to say.
It's the whole market and we'vebeen feeling it as real estate
investors that the whole markethas been affected over the past
couple of years with the rise ofinterest rates.
And people are feeling it.
And I just heard today,literally from someone who is
very, very deeply involved inthe commercial mortgage space,
that something big is happening.
(16:16):
Like you know, defaults arecoming in in, you know, way
beyond what people even expected, and so you know the we haven't
even seen the worst of it yet,which is what my feeling is.
And will it come back?
Who knows?
We can't predict the future,but we can, you know, plan for
what we have and, you know, dealwith the cards we dealt with.
Speaker 1 (16:38):
This is a shared philosophy that Yona and I have
is live your best life right now, like, make good choices, live
your life, yeah, and it will beinteresting.
I have thought for yearsinteresting and I have thought
for for years.
I have actually said um, thatthe commercial real estate space
in the, you know, leading into2020, so, like 2017, up until
(17:00):
you know, interest rates rising.
It reminded me of theresidential real estate space in
the early two thousands leadinginto the oh eight crash.
And so if we see, you saw, itcoming a little bit.
You know it.
Just it felt like you know,when you know a storm's coming
in and there's just a certainway that all of the air feels
(17:22):
and everything it's like.
That's what I felt, like I hadtransitioned at that time into
the commercial real estateinvesting space and I'm like huh
.
Actually, now that I've been inthis for a couple of years,
this seems really oddly familiar, like familiar territory, let
me, and so I proceeded verycautiously with all of my
(17:43):
investing, because I wasparticularly on guard and like a
fixed rate, long term debtcheck, like let's just make sure
we're set on some of thesethings.
If something goes sideways wewill be okay, but yeah, I won't
be too surprised if we do seesome.
Speaker 2 (18:02):
Yeah, I mean, unfortunately, you know,
investing has risks that comealong with it, not beyond the
bridge, debt and these floatingrates and things like that.
There are other risks that areinherently involved and
sometimes there's really nothingyou can do about it.
And we want to be a consciousinvestor and really put to work
(18:28):
our money the best we can andsolid investments that have at
least perceived lower risk,right, but you know, potential
upside with a higher rewards, uh, but in the end of the day, uh,
you know I hate to, I hate tosay this, but it's unfortunately
things happen and beyond ourcontrol, and I'm just sharing
(18:49):
personally for the first time.
I just had a call this weekwith a GP, a general partner,
for an investment that I putmoney into as a limited partner,
passive investor, right, andyou think you're a passive
investor.
It's very passive, right?
What do you do?
You do your due diligence onthe sponsor, who happened to be
a good friend of mine, so Ididn't have any problem with
(19:10):
that.
And we had a call this week thatstuff's happening in the
property that are completelybeyond control.
You know, like totally out of,nothing to do with debt, nothing
to do with the mortgage, likezero, but things that are
completely beyond control, thatare affecting the investment,
and you know what.
You have to deal with it.
So what am I doing?
As a passive investor thatdoesn't want to lose my money,
(19:35):
I'm trying to get more activelyinvolved to see if there's
anything I can do personally tohelp salvage not only my own
investment but everyone else's.
What can we do to make thiswork?
And it's something you don'treally think about, but you know
, sometimes you gotta, you gottastep up to the plate.
Speaker 1 (19:53):
Yeah, this is, this is true, and I I really
appreciate and this is you havesuch a kind heart and I
appreciate that, yeah, things dohappen that are outside of
people's control, that you couldnever have predicted.
I think one thing that and Isay this cautiously, conscious
investor, because we don't knowbut but when I look to the
(20:13):
future and I've been saying thisfor a couple of years I
anticipate taxes to increase.
And so how are we, how are welooking at our taxes?
And this is why costsegregation is so important and
understanding it.
It's like if the tax base goesup, if they are raising our
property taxes, that's going todirectly affect the performance
(20:34):
of everything, and there havebeen instances I've heard of
this already happening andpeople, teams going in
petitioning and they've beenable to be successful with their
petitions to say, wait, youcan't raise our tax out much.
I mean whoa, but it is a realpossibility.
Speaker 2 (20:53):
Yeah.
Speaker 1 (20:54):
And it's.
Speaker 2 (20:54):
you know, real estate is a business like anything
else, and so you have to beaware of potential risks and
deal with it in the mostpractical way.
So yeah, if you can petitionyour county assessor in your
county to get your property taxdown, do it.
You know it's definitelysomething that can be done.
Speaker 1 (21:13):
So it's a good idea.
It definitely is.
Let's go back.
Let's go back to Costig and I'dlove to know for the conscious
investor, if you just walk usthrough, what does that process
look like?
So the conscious investor mighthave some smaller assets of
their own.
Subconscious investor, Like alot of you, have a single family
(21:34):
or a duplex or a quad orsomething, and you're also
invested passively in large.
You know commercial real estateinvestments.
You can utilize cost seg andyou might not have known that.
So can we walk the consciousinvestor through?
What does that process looklike?
Speaker 2 (21:51):
Absolutely.
The first thing we always liketo do is obviously just have a
conversation, understand what aperson's portfolio may look like
, but we run a free upfrontanalysis or estimate to show any
property that you've owned orinvest in that, what the
potential of doing a costsegregation could save you on
taxes versus what you're justtaking the normal straight line
depreciation deduction year.
Invest in that, what thepotential of doing a cost
(22:11):
segregation could save you ontaxes versus what you're just
taking the normal straight linedepreciation deduction year
after year, which most people doand what most accountants are
just aware of.
So that's the first step and sothat really gives you, you know
, first of all, first andforemost, an education, just
understanding what is this goingto look like and what's the
difference between doing this ornot doing it, and so that's a
(22:33):
very powerful tool.
And then the process in termsof getting an actual cost
variation study done is anengineer coming to the property
and analyzing everything in itand, like I said, breaking down
the components of the propertyand it used to be called, by the
way, component depreciation,which makes a lot more sense.
Speaker 1 (22:50):
I didn't know that, yeah, component depreciation,
which makes a lot more sense.
I didn't know that.
Yeah, component depreciation.
How interesting.
Speaker 2 (22:57):
Right, like makes so much more sense than cost
segregation.
Right, because that's exactlywhat we're doing.
We're saying, okay, thisdepreciates this component on a
five-year schedule and this oneon a 15, and this one 27.
And so that's what we do.
No-transcript.
(23:39):
The IRS has a ridiculous amountof rules surrounding, so they
have this thing called the CostIrremediation Audit Techniques
Guide, which is on the IRS'swebsite.
You can check it out if you'reinterested in learning more, and
I highly recommend it forreading, especially if you have
insomnia, it's great, that wouldhelp you.
(23:59):
But the truth be told, jokesaside, it's something that, for
someone who owns a single family, if the property was purchased
for over $200,000, that's whereit really starts to make sense,
because there is a fee involvedthat usually minimally costs
about $3,000 or $4,000 or so toget a cost duration study done,
(24:20):
a full engineering report, etc.
20 to 30% of your property'svalue that you can take as
accelerated depreciationdeductions.
You start getting like 10 Xvalue when you're you know it's
(24:41):
a 200,000 and up.
So, yes, this can be done onsingle family, can be done on
multifamily.
Any type of property.
You know we're talking selfstorage, office, industrial
retail.
You know, golf course, whateveryou name it, car washes, any
type of property whatsoever aslong as it's not your primary
residence.
And so we have a lot ofinvestors, a lot of clients that
own short-term rentals, airbnbs, and this has become obviously
(25:03):
very popular over the past 10years or so, and it's one of
probably I'd say one of the mostoverlooked asset classes for
cost seg, simply because it's aninvestment property and
typically Airbnb's havesignificantly higher cash flow
than a long term rental would,and therefore, because there's
(25:25):
more cash flow, there's going tobe more tax liability, and so
to be able to use a strategylike cost seg to reduce that and
so therefore, creating moreincome with the investment
property and also having it be,you know, essentially tax free
is, you know, a great kind ofcombination.
Speaker 1 (25:43):
That's amazing and I have to.
Candidly, one of my bestfriends just came to mind and
I'm like she has a coupleAirbnbs.
I'm like I wonder if she's donethat yet.
I need to reach out to her.
I need to make sure you guysare connected.
If she hasn't, this is going tobe kids.
It will increase the cashflow.
That's powerful.
Speaker 2 (26:03):
Yeah, extremely.
Speaker 1 (26:06):
So I'm curious what is it that you know?
That you know a lot, but let meask this question a different
way.
What are some of the thingsthat you find surprising that
most people don't know aboutcost seg or an assumption that
they erroneously make that couldlead to some problems.
Speaker 2 (26:29):
I come across a lot, believe it or not, and not just
from you know, people who happento own properties, but even
from accountants who aresupposedly supposed to be in
your best interests, looking outfor your best interest in terms
of your taxes.
Well, unfortunately they're.
They're not always.
You know, many accountants arejust you know, I hate to say
this but just kind of pencilpushers, you know, looking at
(26:50):
punching numbers and filling outforms, which which is great and
uh, but they're not necessarilytax strategists and looking out
to be proactive, to see whatother types of deductions, what
other strategies you can use.
And but in terms of going backto your question about
misconceptions or about thingspeople just are unaware of, one
thing is probably one of thebiggest is that people think you
(27:11):
have to do the cost seg in thefirst year of you buy a property
, and it's simply not the case.
If you own a property for anumber of years, as long as it's
profitable and it meets thecriteria, then you can go back
and actually, without evenhaving to amend previous year's
tax returns, you can go back andcatch up your missed
depreciation.
So if you own a property for afew years and never knew about
(27:33):
cost seg.
You can go back.
Now it does.
Once you've owned a propertyfor, let's say, 10 years or more
, you've already taken so muchdepreciation that there's not
much left with to accelerate.
So it just, practicallyspeaking, doesn't always make
sense at that point.
But if you own a property forless than that, it's worthwhile
to look, you know, to actually,you know, get an estimate and
(27:55):
see does it make sense, is itgoing to benefit?
So that's one of the biggestones.
Speaker 1 (28:00):
Is there any area of kind of like the gotcha that
happens to you know people usingcost seg?
Speaker 2 (28:08):
Oh yeah, there are, and unfortunately this comes
about by people talking aboutcost seg without providing all
the details right of what, whathappens you know, for example,
or who this can benefit the most, etc.
So there are couple of things Iwant to point out here which
don't get talked about enough.
The first one is what's calledthe real estate professional
status, and this is essentiallymeans that if you are not a
(28:35):
full-time real estateprofessional okay, which means
either you or your spouse,either one of you is not
full-time as a you know, realtoror investor, operator, etc then
the benefits of cost seg anddepreciation in general are
limited to only offset yourpassive, or what the irs deems
passive, rental property income.
Okay, there's a few other typesof passive income, but it's not
(28:58):
stocks, by the way, in caseyou're wondering, his stocks is
not considered passive in theirs size, um, for this
perspective.
And so that's a huge thing,because a lot of people think,
oh, I'm going to buy aninvestment property and I've
heard literally I've heard guruson the internet, you know, on
TikTok or whatever not TikTok,because I don't watch TikTok,
but you know what I mean.
Like Instagram, you see thethings.
Speaker 1 (29:17):
That's made on Instagram.
Speaker 2 (29:19):
And they're talking about oh yeah, buy a property
and then you won't ever paytaxes again.
Well, unfortunately, if you'renot a real estate professional,
you can only use thosedeductions from cost seg to
offset your passive income fromyour rental properties, or
passive gain which comes on fromthe sale of a rental property
as well.
There are a couple exceptionsto that rule, now.
(29:39):
Obviously the first andforemost, if you're a real
estate professional or yourspouse, is you can use it freely
, meaning you can use it tooffset your active or your W-2
or any other source of incomewhatsoever, and that is probably
why cost seg has been sopowerful.
Now, don't get me wrongOffsetting your passive income
by itself is, in of itself, ahuge benefit.
I mean, think about any othertype of investment out there
(30:03):
that you can put, you know, putmoney in, get returns on that
and actually not pay taxes onthat either.
Okay, so, yes, there's oil andgas is similar to that, but
there are very, you know, almostno other investment vehicles
that you can, essentially,during the whole period of the
property you know, get a taxfree income from it.
So that's, that's first andforemost.
So it's still beneficialregardless.
(30:25):
The second thing I want to bringup which also doesn't get
talked about a lot and maybe alittle confusing for a lot of
people, but it's somethingcalled depreciation, recapture,
and it sounds scary, but it'snot, because recapture doesn't
mean what it sounds like,similar to depreciation, right?
I like to throw this out there,because depreciation is not
negative.
It sounds like a negative thing.
(30:46):
It's literally a borrowed term.
It just means it's the name ofthe tax deduction, as if your
property was going down in value.
It's not so.
Recapture tax is the name of atax.
When you sell a property,you're going to be subject to
this tax.
That says any amount ofdepreciation taken to this tax.
That says any amount ofdepreciation taken you're now
(31:07):
going to be taxed on upon thesale.
The good news is good news,right, because it's important to
understand how this works andmost people don't.
And I think part of the gotchayou asked about, like the gotcha
, is that the gotcha is.
People think it's a gotcha, butin many cases it's not.
So people talk about you goinglike bigger pockets and they say
you, you never do a cost sakebecause, recapture, you're going
to pay it all back when yousell.
(31:28):
And that's not true.
Simply put, it doesn't meanyou're paying it back, means
you're subject to a tax on theamount you took.
But there are many ways toeither defer or further reduce
or offset that recapture tax onthe sale, and so it just.
I don't need to necessarily getinto all those different ways
to do that, but have aconversation with your tax
(31:48):
advisor and see if there areways to reduce that or defer it
further out.
Because that's what real goodtax planning is all about is
figuring out ways to defer,deduct and figure out ways to
not pay taxes this year Because,like you said, in the future
taxes might be higher.
But what can I do today to helpme save money on taxes?
Speaker 1 (32:10):
I feel like there's just a massive mic drop, like
all the mics just dropped rightthere.
Boom, and that was.
You completely read my mind andeven went further than that.
But with the whole, you know,recapture, it doesn't get talked
about when it's spoken about.
It's spoken about in such aconvoluted way where it does.
(32:31):
So often it's like, oh no,that's the enemy, You're not
going to make anything, it'sgoing to be terrible.
And it's how about we just getthe facts and find out actually
how this works?
Because clearly, stronginvestors utilize a strategy all
the time and this is what growstheir investment portfolio by
(32:52):
leaps and bounds, because theyunderstand and they work with
their tax strategist, they workwith a great company like
Madison Spex and then they areable to get ahead.
It's so important.
Okay, Are there other elementsthat you wish everyone knew
about?
(33:12):
Cost seg, that it's like.
This is the like.
No, you really need tounderstand this.
If you could double down onanything, what would that be?
Speaker 2 (33:24):
One thing I want to bring up.
I mentioned, kind of in passing, short-term rentals.
There is and this is for a lotof those people out there who
may be who you know, theconscious investor, who may have
a high income and is notnecessarily a real estate
professional but wants tomaximize their tax benefits as
much as possible there'ssomething called the short-term
(33:44):
rental loophole, and it's notreally a loophole because it's
actually written in the tax code, but we call it that because
maybe the law was written not inthe same way, potentially, that
it's being used today, becauseAirbnbs didn't really exist 20
years ago when the law waswritten.
But essentially this says thatif you self-manage a short-term
(34:05):
rental and the average stay isless than seven days and you
materially participate andyou're actually self-managing it
and there are a couple rulesthere, but regardless you're
actually able to use cost seg tooffset your active income.
I'm just going to repeat thatbecause it's very powerful.
You're making a lot of money.
Maybe you have a W-2 highearning and you're getting hit
hard with taxes and looking forways to reduce your tax burden
(34:28):
and you're like, okay, realestate is great and this cost
sink thing is great.
And then you find out.
Well, I'm not a real estateprofessional, so I'm really
limited.
It can offset my W-2 income.
Comes along this thing calledthe short term rental.
If I go out and buy an Airbnband then do a cost, sink it and
I, you know, materiallyparticipate in self-managing it,
which may seem daunting atfirst.
But I'll be honest with you,after speaking with hundreds of
(34:51):
people who were not real estateinvestors beforehand, that did
this and are doing this, it'sreally not that hard.
Now you have to want to do it.
Okay, it has to be somethingthat you want to run.
You know an Airbnb business andit may take some time setting
up and getting the right systemsin place.
But back to the point here.
(35:12):
After that tangent, once you'vedone that, the deductions from
cost seg become activedeductions, which means you can
then offset your W-2 income.
Now that's huge.
That, to me, has literallyhundreds of people that I know
that have done this and stillworking full-time and are able
to pay little to no taxesbecause of one or two or three
(35:35):
or whatever Airbnbs that theyrent out and are literally
paying no taxes.
Speaker 1 (35:40):
I know people who that is their jam.
They love their careers andthey have a couple of short-term
rentals.
Because I can have thatshort-term rental and offset my
active income and I can managethis, this is fine.
Yeah, it's powerful.
And maybe that's why we seesuch a surge.
I have been curious about thisfor the last few years.
(36:01):
Is this why so many people aregoing into you know, the
short-term rental space, youknow, and why it's flooded?
Speaker 2 (36:07):
It's.
You know, I would say thatthere is a that is a factor.
I don't know if it's the onlyone, but you know I'm friends
with Avery Carl, who runs theshort-term shop, and she's
authored a book on biggerpockets called Short-Term Rental
Long-Term we.
She's authored a book on biggerpockets called short-term
rental long-term wealth, and sheruns she, you know she's a huge
(36:30):
real estate investor herself,but she runs the largest
short-term rental brokerage inthe country in out of Tennessee.
It's called the short-term shopand cost seg, and I'm in their
Facebook group and everything,and cost seg is huge in that
group, like everyone, and it's apush because it is true that
you can use it, and there, ifyou're not a real estate
professional, there are notreally a lot of ways that you
(36:51):
can offset your, your income,and so this is a legitimate way
to do so, and so, yeah, I thinkit's certainly a factor I don't
know how big of a factor.
Obviously there's a lot ofother things involved too, and I
mentioned earlier.
Also it's a great cash flowtool, because Airbnbs can make
three to five times the amountof cash flow that a long-term
(37:11):
rental would.
So why not?
Speaker 1 (37:14):
Yeah, yeah.
It's interesting that theshort-term rental space is
definitely an interesting space,not my personal jam, but I have
lots of friends who that'stheir jam and I say good for you
.
It's not the type of work Ipersonally want to do, and
that's why it's really importantto know what is it you want to
(37:35):
do, what's in your lane thatbrings you joy, that allows you
to sleep at night, and it'sdifferent for every single
person, and so, again, I'll highfive all my my short-term
rental friends.
Speaker 2 (37:45):
For sure, but a lot you know.
A lot of times you don't evenknow what that is until you try
right, or until you, uh, youknow, test out different things
and, like I tried fixing flipsfor you know before you know,
before I got involved in thecosting thing and I hated it.
That was like right whateveryone has to figure out what
they, you know what they like,what they don't like.
Speaker 1 (38:12):
Ah, I love that, yona .
It's always a delight to sharespace with you and I appreciate
just the simplicity which youcommunicate with your educators.
Hearts, you know, now servespeople, what has been for years,
but it really just keeps thingssimple and clear and easy to
understand and I reallyappreciate that.
I know conscious investor thishas.
There's a lot of information inhere that is going to resonate
with you, or I know you knowsomeone where this is going to
(38:35):
be a game changer for them, andso I want to encourage you to.
One, make sure you go.
We're going to do three things.
One, make sure you go follow.
Y're going to do three things.
One, make sure you go followYona over on LinkedIn.
Okay, like that's a must.
Go do that.
And then, two, please sharethis episode with that friend
that comes to mind that iscaring, and you have friends
(38:58):
that are investing in differentways, that don't know they can
do this, so just pass this alongto them, okay, know they can do
this, so just pass this alongto them, okay.
And then, three, you want tomake sure that you, yona, where
should we send them Aside fromLinkedIn?
You want to just send them toLinkedIn.
Speaker 2 (39:13):
You can send them to LinkedIn, you can go to
yonawisecom and you can find outmore about whatever else I'm
doing today as well.
I do want to make one slightcorrection not correction
addition to what you said aboutgo over to LinkedIn and follow
me.
Do not go to LinkedIn andfollow me.
Go to LinkedIn and hit theconnect button and add a note.
(39:35):
Take 10 seconds Instead ofhitting that follow.
It's so easy.
Just okay, I'm going to followthis person, follow this person,
follow, follow, follow.
You follow thousands of peopleon social media and you never
actually get to know them.
Well, guess what?
I want to get to know you.
Right?
I want to be part of thiscommunity.
If you're a friend of Julie's,you're obviously a friend of
mine as well.
And hit that connect button,add a short note doesn't take
(39:58):
more than 10 seconds and say youlistened to me, you heard me on
Julie's podcast.
That would be great.
Speaker 1 (40:08):
Please do that and, yes, connect.
I know better.
I'm like I was not using myappropriate terms and I'm glad
you were able to get us on theright track there and I know
conscious of us, or you can feelYona's heart.
This is why I had him on theshow.
This is why he's just awonderful human that is there
for you.
He advocates for people andsupports people, and you
definitely want to make surethat you're connected with Yonah
(40:29):
and, you know, just followalong and engage in all of his
posts, because they're so muchfun and the type of people that
are attracted to Yonah are thetype of people that you will
want to be around as well.
I am certain of that.
Yonona, thank you again foryour time in coming here and
just pouring into us today.
Speaker 2 (40:49):
Well, I appreciate you for having me back and
really grateful to you andeverything you do for the
community.
Speaker 1 (40:56):
Thank you so much.
Conscious Investor, remember,adventure belongs on the trail,
not in your investing and not inyour personal life.
So make sure you reach out.
If you want to learn more aboutinvesting, head over to
3keysinvestmentscom.
If you want to learn more aboutcoaching or investing, it's all
housed atIamAConsciousInvestorcom.
(41:19):
Yeah, that's an affirmation,Remember, because conscious is
tricky to spell.
It just is so.
Type in an affirmation.
Remember, because conscious istricky to spell.
It just is so.
Type in that affirmation.
I am a consciousinvestorcom andyou have access to everything
and you can connect up with methere.
Schedule time for us to chat.
Let's not be strangers.
Until next time.
Cheers to your health, mindsetand wealth.
(41:41):
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