WEBVTT NOTE This file was generated by Descript 00:00:08.209 --> 00:00:11.840 Speaker: Welcome to Real Estate is Taxing, where we talk about all things real estate 00:00:11.870 --> 00:00:16.869 tax and break down complex concepts into understandable, entertaining tax topics. 00:00:17.440 --> 00:00:21.259 My name is Natalie Kalady, I'm your host, and I am so excited 00:00:21.259 --> 00:00:22.670 that you've decided to join me. 00:00:24.008 --> 00:00:24.398 Microphone (Shure MV7)-2: Hello. 00:00:24.398 --> 00:00:25.598 Hello everyone. 00:00:25.868 --> 00:00:28.628 Today's show is a perfect example. 00:00:29.108 --> 00:00:31.958 Of why the most common response when it comes to anything 00:00:31.958 --> 00:00:35.018 tax related is it depends. 00:00:36.068 --> 00:00:40.718 If you are ever told something with 100% certainty, that 00:00:40.718 --> 00:00:45.248 could be different depending on someone's specific circumstances. 00:00:45.728 --> 00:00:47.468 That should be a red flag to you. 00:00:48.158 --> 00:00:52.448 Unfortunately, this happens way more often than it's shit. 00:00:52.988 --> 00:00:57.518 And it can lead to people making the wrong choice when it comes to a tax item. 00:00:57.848 --> 00:01:01.868 Or it can lead to them, making a terrible choice that can end up 00:01:01.898 --> 00:01:04.238 costing them an insane amount of money. 00:01:04.868 --> 00:01:09.718 So when you go to a tax professional, And do you ask them? 00:01:10.168 --> 00:01:15.838 Should I consider doing a cost segregation study on my single family house. 00:01:16.438 --> 00:01:18.328 And their immediate response. 00:01:18.838 --> 00:01:20.188 Is no. 00:01:20.518 --> 00:01:21.688 Absolutely not. 00:01:21.988 --> 00:01:23.128 They're not worth it. 00:01:24.058 --> 00:01:27.838 Cost segregation studies are only for commercial properties 00:01:28.018 --> 00:01:29.818 or cost segregation studies. 00:01:30.358 --> 00:01:34.738 Only ever make sense on a house that costs this amount or more. 00:01:35.368 --> 00:01:40.048 Or no one should do these unless they're a real estate professional, et cetera. 00:01:40.888 --> 00:01:44.128 That should give you a little bit of reason to guess. 00:01:45.088 --> 00:01:46.618 And if you are. 00:01:46.918 --> 00:01:50.758 A tax professional who approaches cost segregation studies. 00:01:51.208 --> 00:01:56.488 With such a black and white viewpoint, then hopefully this episode will 00:01:56.578 --> 00:01:59.458 open up your mind to a little more consideration around them. 00:01:59.958 --> 00:02:01.668 a cost segregation study. 00:02:02.328 --> 00:02:06.288 It's something that a real estate investor can have done to a 00:02:06.288 --> 00:02:07.758 piece of investment property. 00:02:08.748 --> 00:02:13.398 Where instead of just depreciating an overall building has one asset. 00:02:14.328 --> 00:02:17.538 The study has an engineer go through and allocate out. 00:02:18.018 --> 00:02:20.508 Various components of this building. 00:02:20.958 --> 00:02:25.728 So instead of having one building that gets depreciated across 39 00:02:25.728 --> 00:02:27.918 years or 27 and a half years. 00:02:28.608 --> 00:02:31.608 Now we have other assets like flooring windows. 00:02:32.118 --> 00:02:34.428 Appliances fencing, et cetera. 00:02:35.118 --> 00:02:37.908 And because we have values for all of those items. 00:02:38.478 --> 00:02:41.238 We can now depreciate them separately. 00:02:41.658 --> 00:02:43.578 And some of those have shorter lives. 00:02:44.028 --> 00:02:47.538 Meaning that we can now write off the cost value of the fence. 00:02:48.138 --> 00:02:49.038 Across its correct. 00:02:49.038 --> 00:02:53.298 15 year life instead of the presumed overall purchase 00:02:53.298 --> 00:02:55.998 of a property 39 year life. 00:02:56.478 --> 00:02:56.868 Right. 00:02:56.898 --> 00:03:00.198 Anyone who has bought real estate, you typically don't receive a 00:03:00.198 --> 00:03:02.358 breakout of everything you're buying. 00:03:02.928 --> 00:03:04.848 It's normally just the property, right? 00:03:04.848 --> 00:03:06.348 You're buying one lump sum. 00:03:06.918 --> 00:03:10.428 Of a building of land, have everything in it, have everything attached 00:03:10.428 --> 00:03:13.098 to it, of all of the appliances that came with it, et cetera. 00:03:13.598 --> 00:03:18.068 So people like a cost segregation study because it's more accurate. 00:03:18.968 --> 00:03:23.258 Because it can potentially give us larger depreciable amounts per year. 00:03:24.038 --> 00:03:24.518 And. 00:03:25.268 --> 00:03:27.758 Because we've had bonus depreciation. 00:03:28.298 --> 00:03:31.538 Which is a fancy word for writing off a bunch in the first year. 00:03:32.408 --> 00:03:36.308 And anything with the life of 20 years or less could qualify for bonus. 00:03:36.758 --> 00:03:40.568 So it was preferential to separate out as much as we could 00:03:40.568 --> 00:03:42.608 from that long building value. 00:03:43.058 --> 00:03:45.818 Because then it could qualify for bonus depreciation. 00:03:46.318 --> 00:03:50.608 So those are all the reasons, people like a cost SEG and what they are. 00:03:51.328 --> 00:03:56.128 Now let's get into when someone should actually consider 00:03:56.248 --> 00:03:57.928 a cost segregation study. 00:03:58.738 --> 00:04:00.958 Like I mentioned at the start of the episode. 00:04:01.468 --> 00:04:05.578 Anyone who provides a clear black and white when you should or 00:04:05.578 --> 00:04:07.978 shouldn't with no wiggle room. 00:04:08.728 --> 00:04:11.848 It's probably not the person to be discussing this with. 00:04:13.168 --> 00:04:16.258 There are two kinds of cost segregation studies. 00:04:16.708 --> 00:04:20.638 There are a D I Y a study where you enter your information on a website. 00:04:20.998 --> 00:04:26.278 And it uses a gathered information algorithm to take a best guessed estimate. 00:04:26.878 --> 00:04:28.858 At your values of components. 00:04:29.398 --> 00:04:30.298 And spits it out. 00:04:31.018 --> 00:04:32.188 We don't like these. 00:04:33.118 --> 00:04:34.678 In the past year or two. 00:04:34.948 --> 00:04:38.398 I've known multiple colleagues who have had these DIY studies. 00:04:38.818 --> 00:04:42.298 Specifically, fully disallowed by IRS auditors. 00:04:42.778 --> 00:04:46.348 So even though a DIY study can be under a thousand dollars. 00:04:47.128 --> 00:04:49.678 It's almost never going to pass. 00:04:49.978 --> 00:04:50.908 An IRS audit. 00:04:51.408 --> 00:04:55.818 Now if a DIY study is just under a thousand dollars. 00:04:56.448 --> 00:04:58.668 What can we expect to pay for a full study? 00:04:59.388 --> 00:05:00.558 With a full study. 00:05:01.038 --> 00:05:04.068 An actual expert, an engineer analyzes the property. 00:05:04.128 --> 00:05:07.338 They come out and tore it, or they have you do a video tour of it. 00:05:07.428 --> 00:05:12.648 And then they look at the actual size and components and materials of your property. 00:05:13.098 --> 00:05:16.158 And assign reasonable values based on an expertise. 00:05:16.658 --> 00:05:18.638 One of these full scope studies. 00:05:19.178 --> 00:05:25.718 We'll typically cost between $3,000 and $15,000 for a single family home. 00:05:26.218 --> 00:05:27.778 I know this is quite a range. 00:05:28.588 --> 00:05:31.918 On average, if you are talking about your standard. 00:05:32.368 --> 00:05:34.948 Three two and a residential neighborhood. 00:05:34.978 --> 00:05:37.528 You're probably in the three to $5,000 range. 00:05:38.038 --> 00:05:42.058 If you have a unique property way out in the mountains, you're going 00:05:42.058 --> 00:05:43.528 to get into that higher range. 00:05:43.918 --> 00:05:46.738 Once you go into commercial real estate, it goes up from there. 00:05:47.848 --> 00:05:52.438 So one of the initial things that I hear when it comes to the question 00:05:52.468 --> 00:05:57.328 of who should do, or when should someone do a cost segregation study? 00:05:57.898 --> 00:06:00.598 Is a specific price point of real estate. 00:06:01.648 --> 00:06:04.168 A cost segregation is only worth doing. 00:06:04.588 --> 00:06:09.958 If the house was $300,000 or a cost segregation is only worth doing on real 00:06:09.988 --> 00:06:11.698 estate of a million dollars or more. 00:06:12.688 --> 00:06:16.048 This is a stupid response, and I'm going to tell you why. 00:06:17.008 --> 00:06:18.718 What a property costs. 00:06:19.408 --> 00:06:24.148 And what its depreciable value are, can be dramatically different. 00:06:24.928 --> 00:06:29.188 When we have a piece of depreciable real estate. 00:06:30.238 --> 00:06:32.818 We typically have purchased everything in one amount. 00:06:33.388 --> 00:06:35.668 And then we need to separate out the value. 00:06:36.088 --> 00:06:37.018 For the land. 00:06:37.258 --> 00:06:38.698 Versus the building. 00:06:39.718 --> 00:06:41.818 Land value is not appreciable. 00:06:42.388 --> 00:06:43.678 Building value is. 00:06:44.398 --> 00:06:47.248 There are some locations where I have seen. 00:06:47.968 --> 00:06:52.588 70%, 80% being all land value. 00:06:53.338 --> 00:06:57.688 If this is a tiny house in a really populated city. 00:06:58.168 --> 00:07:00.118 The land is what holds the high value. 00:07:00.448 --> 00:07:02.188 Not the tiny crappy house. 00:07:02.548 --> 00:07:05.728 That's going to get torn down and probably built with something new. 00:07:06.228 --> 00:07:07.608 If you're looking at houses. 00:07:08.268 --> 00:07:09.798 In the rural Midwest. 00:07:10.338 --> 00:07:14.118 Then there's a good chance that the land value is 10% or less 00:07:14.118 --> 00:07:15.648 on many of these properties. 00:07:16.398 --> 00:07:19.158 So a dollar to dollar comparison. 00:07:19.488 --> 00:07:22.698 To say this purchase price is where it makes sense. 00:07:23.178 --> 00:07:24.378 Doesn't matter. 00:07:24.978 --> 00:07:28.368 The amount that is depreciable is what matters. 00:07:29.718 --> 00:07:32.898 If you have a $500,000 house. 00:07:33.438 --> 00:07:36.078 But 50% of that is land value. 00:07:36.708 --> 00:07:40.398 You're only getting to depreciate $250,000. 00:07:41.268 --> 00:07:43.518 If you have a $300,000 house. 00:07:44.028 --> 00:07:46.698 But only 15% of that is land value. 00:07:47.088 --> 00:07:51.078 You're going to have 255,000 of depreciable value. 00:07:51.768 --> 00:07:55.758 So the purchase price of the house is not what's relevant. 00:07:56.328 --> 00:07:59.238 It is what is the depreciable basis? 00:07:59.768 --> 00:08:03.728 I will typically say, but if a property has an appreciable 00:08:03.758 --> 00:08:06.848 basis of $250,000 or more. 00:08:07.388 --> 00:08:10.778 That's where it makes sense to look at a cost segregation study. 00:08:11.438 --> 00:08:12.728 If it's less than that. 00:08:13.088 --> 00:08:14.168 Would it make sense? 00:08:14.918 --> 00:08:15.668 Maybe. 00:08:16.118 --> 00:08:18.008 Everyone's circumstances are different. 00:08:19.138 --> 00:08:19.888 So for me. 00:08:20.248 --> 00:08:22.048 $250,000. 00:08:22.528 --> 00:08:25.498 Of depreciable value, not purchase price. 00:08:26.128 --> 00:08:27.628 That's going to be my sweet spot. 00:08:27.628 --> 00:08:28.858 We're from there and up. 00:08:29.158 --> 00:08:30.838 I will absolutely look at this. 00:08:31.798 --> 00:08:37.018 Most cost segregation firms will also do a feasibility study on the front end. 00:08:37.478 --> 00:08:41.858 now you can do a quick analysis on what the cost will be. 00:08:42.428 --> 00:08:44.138 And the potential savings will be. 00:08:44.838 --> 00:08:49.218 Once you have figured out if the property is worth investing 00:08:49.218 --> 00:08:50.418 in one of these studies. 00:08:51.228 --> 00:08:53.688 The next question that comes into play. 00:08:54.528 --> 00:08:58.728 Is really, is there a benefit of having the study done? 00:08:59.428 --> 00:09:01.948 There are multiple situations. 00:09:02.458 --> 00:09:06.538 Where someone is unable to use losses created by real estate. 00:09:07.468 --> 00:09:09.928 Long-term rentals are typically passive. 00:09:10.618 --> 00:09:12.778 And passive losses are limited. 00:09:13.258 --> 00:09:16.108 Once your income gets above a hundred thousand dollars. 00:09:16.918 --> 00:09:22.318 If your income is above 150,000, you might not be able to use any amount of losses. 00:09:23.018 --> 00:09:27.848 So that being said, A key consideration of if someone should or should 00:09:27.848 --> 00:09:29.828 not do a cost segregation study. 00:09:30.638 --> 00:09:34.748 Also comes down to, is there an actual, usable purpose? 00:09:35.078 --> 00:09:36.098 For this study. 00:09:36.668 --> 00:09:40.448 Or will you be spending $5,000 per rental this year? 00:09:40.868 --> 00:09:45.188 To get back zero in savings because you've created. 00:09:45.758 --> 00:09:47.588 A hundred thousand dollars of losses. 00:09:48.098 --> 00:09:50.588 But you can't actually deduct a penny of them. 00:09:50.948 --> 00:09:55.268 So you need to look at if the loss can actually be utilized 00:09:55.298 --> 00:09:57.068 and help your tax situation. 00:09:57.768 --> 00:10:01.488 There are four scenarios where it is typically worth it. 00:10:01.998 --> 00:10:05.148 The first one being real estate professional status. 00:10:06.138 --> 00:10:08.598 If you have real estate professional status. 00:10:09.168 --> 00:10:13.248 Where you spend more time on real estate than any other activity spend at 00:10:13.248 --> 00:10:15.888 least 750 hours a year in real estate. 00:10:16.908 --> 00:10:19.878 Then you're normally passive rental activities. 00:10:20.658 --> 00:10:24.948 We'll be classified as non passive, and as long as you're materially 00:10:24.948 --> 00:10:26.778 participating in that activity. 00:10:27.138 --> 00:10:28.608 You can use losses. 00:10:28.608 --> 00:10:33.948 It creates your only limitation is going to be the excess business loss limit. 00:10:35.028 --> 00:10:36.888 If you're a real estate professional. 00:10:38.058 --> 00:10:43.038 And if your property has a depreciable basis of 250,000 or more. 00:10:43.818 --> 00:10:44.778 Absolutely. 00:10:45.198 --> 00:10:48.378 Take the next step and look into doing a cost segregation study. 00:10:48.798 --> 00:10:52.008 You'll be able to use those losses to offset your other income. 00:10:52.488 --> 00:10:55.968 See if that helps and make sense for your tax position this year. 00:10:57.368 --> 00:11:01.778 The second time when it makes sense to investigate a cost segregation study. 00:11:02.678 --> 00:11:04.658 Is if your adjusted gross income. 00:11:04.928 --> 00:11:06.518 Is under a hundred thousand dollars. 00:11:07.778 --> 00:11:10.088 If your income is under a hundred thousand dollars. 00:11:10.628 --> 00:11:15.098 You can utilize up to $25,000 a year of passive losses. 00:11:15.878 --> 00:11:20.828 So, what this means is if you do cost segregation studies this year, And you 00:11:20.828 --> 00:11:22.778 create a hundred thousand dollar loss. 00:11:23.198 --> 00:11:27.398 You can potentially take a quarter of that every year for the next four years. 00:11:27.998 --> 00:11:29.648 That's not a bad position to be in. 00:11:30.348 --> 00:11:34.158 The third circumstance where it's worth looking at a cost segregation study 00:11:34.488 --> 00:11:36.558 would be the short-term rental loophole. 00:11:37.248 --> 00:11:41.748 If your rental has an average guest stay of seven days or less. 00:11:42.498 --> 00:11:45.048 And you materially participate in the property. 00:11:45.798 --> 00:11:47.058 It is by nature. 00:11:47.118 --> 00:11:51.018 Non-passive it falls out of the definition of a passive rental. 00:11:51.858 --> 00:11:56.628 In this case, any losses that it generates you can deduct against 00:11:56.628 --> 00:11:58.068 your other income sources. 00:11:58.758 --> 00:12:02.478 Even if your income is above that $150,000 mark. 00:12:03.878 --> 00:12:06.998 The last circumstance that people often forget. 00:12:08.018 --> 00:12:12.998 Is, if you have a large amount of passive income for a year. 00:12:13.658 --> 00:12:17.618 Including gain from the sale of a passive rental. 00:12:18.818 --> 00:12:20.978 If you have 10 rental properties. 00:12:21.608 --> 00:12:24.398 And this year you are going to be selling two of them. 00:12:24.458 --> 00:12:27.668 And you know, you're going to have a $500,000 gain. 00:12:28.628 --> 00:12:30.998 Could you do cost segregation studies. 00:12:31.478 --> 00:12:34.178 On one or more of your remaining rentals. 00:12:34.808 --> 00:12:38.288 And use the losses that generates to offset that gain. 00:12:39.398 --> 00:12:41.768 Passive rental losses. 00:12:42.488 --> 00:12:48.128 Can offset the gain from the sale of what was a passive rental property. 00:12:49.058 --> 00:12:52.598 So even though those losses wouldn't be deductible against your other 00:12:52.598 --> 00:12:54.848 income, had you not sold those rentals? 00:12:55.478 --> 00:13:00.338 Because you have sales from rentals in the same tax year, the gain from the 00:13:00.338 --> 00:13:03.488 sale of rental properties can be offset. 00:13:03.878 --> 00:13:08.198 By current year or prior year, carry over passive losses. 00:13:09.278 --> 00:13:13.448 If you have this circumstance or, you know, this is coming up where you're going 00:13:13.448 --> 00:13:15.338 to be selling some of your properties. 00:13:15.758 --> 00:13:20.888 That is another fantastic opportunity to look into a cost segregation study. 00:13:21.588 --> 00:13:23.598 A few other considerations. 00:13:24.928 --> 00:13:27.748 How long have you already owned that property? 00:13:28.798 --> 00:13:30.808 If you have owned that property. 00:13:31.108 --> 00:13:32.698 For 30 years already. 00:13:33.508 --> 00:13:35.488 And it's a 39 year asset. 00:13:36.148 --> 00:13:40.828 You don't have much depreciation left to separate out and have benefit from. 00:13:41.308 --> 00:13:42.298 You've already used up. 00:13:42.298 --> 00:13:42.928 Most of it. 00:13:43.628 --> 00:13:47.708 The shortest asset class that we are separating costs into 00:13:47.738 --> 00:13:51.608 in a cost segregation study is going to be five-year assets. 00:13:52.208 --> 00:13:56.168 So if you have already owned the property and been depreciating it 00:13:56.438 --> 00:14:01.808 for 10 years at this point, All of those five-year costs of depreciation. 00:14:02.198 --> 00:14:03.338 You've already worn out. 00:14:03.338 --> 00:14:07.238 the longer you've owned a piece of real estate, the less beneficial 00:14:07.238 --> 00:14:11.708 this becomes because you have less depreciation left to tap into. 00:14:12.408 --> 00:14:13.938 The next consideration. 00:14:15.448 --> 00:14:17.728 If you are doing this study in a later year. 00:14:18.238 --> 00:14:22.108 Your tax professional will need to complete form 31 15. 00:14:22.468 --> 00:14:24.418 With your tax return that year. 00:14:24.988 --> 00:14:27.388 Now, this is a pretty in-depth form. 00:14:28.078 --> 00:14:32.338 And you can expect to be charged a higher amount for your taxes. 00:14:33.028 --> 00:14:36.178 In the year that it requires a 31 15. 00:14:36.878 --> 00:14:39.548 If you look at the instructions for this form. 00:14:40.088 --> 00:14:43.478 It literally notes that just the time to prepare it. 00:14:43.898 --> 00:14:47.678 Not including time for bookkeeping and preparation ahead of time. 00:14:48.068 --> 00:14:50.138 But just the time to complete the form. 00:14:50.468 --> 00:14:54.818 The estimated time it has on the instructions is 21 hours. 00:14:55.308 --> 00:14:59.418 So when you are running numbers to decide if a cost segregation study is worth it. 00:15:00.138 --> 00:15:03.408 You will need to consider both the cost of the study. 00:15:03.948 --> 00:15:07.278 And the additional cost from your tax professional. 00:15:07.728 --> 00:15:12.258 To include that 31 15 and the extra time on your tax return that year. 00:15:13.158 --> 00:15:15.648 The final two items for consideration. 00:15:16.068 --> 00:15:19.038 On, if you should do a cost segregation study. 00:15:19.398 --> 00:15:21.528 Our two that are often overlooked. 00:15:21.798 --> 00:15:23.868 And can be fantastic strategies. 00:15:24.828 --> 00:15:26.088 The first one being. 00:15:26.988 --> 00:15:30.738 If that rental property was in service when you purchased it. 00:15:31.728 --> 00:15:35.928 And then you have it vacated so that you can do a large renovation on it. 00:15:36.788 --> 00:15:41.498 Doing a cost segregation study at that point, before you do the renovation. 00:15:42.128 --> 00:15:46.598 Effectively means you're going to get to almost right off. 00:15:47.618 --> 00:15:49.928 More than one single renovation. 00:15:50.228 --> 00:15:51.128 Let me explain. 00:15:51.828 --> 00:15:54.228 If you had no cost segregation. 00:15:54.918 --> 00:15:58.068 And the building value that appreciable value on that property 00:15:58.068 --> 00:15:59.508 was a hundred thousand dollars. 00:16:00.588 --> 00:16:03.108 And then you went in and spent. 00:16:03.798 --> 00:16:06.408 50,000 on a full studs out, rent out. 00:16:07.068 --> 00:16:11.388 All of those pieces of assets that you disposed of everything from 00:16:11.388 --> 00:16:15.258 that original property that you threw out there, floors that were 00:16:15.258 --> 00:16:16.488 in there when you bought it right. 00:16:16.488 --> 00:16:18.408 The appliances that were in there when you bought it. 00:16:18.888 --> 00:16:21.768 You don't know the values of each of those without a study. 00:16:22.518 --> 00:16:25.008 So even though you disposed of those. 00:16:25.708 --> 00:16:28.048 You can't write off any carrying value. 00:16:28.748 --> 00:16:31.628 If you have a cost segregation study done. 00:16:32.198 --> 00:16:36.098 On the property that's in service already has a tenant when you buy it. 00:16:37.088 --> 00:16:38.918 Then, you know, the cost of. 00:16:39.488 --> 00:16:40.928 Those five-year floors. 00:16:41.628 --> 00:16:47.058 So if the cost segregation study says these floors have a value of $5,000. 00:16:47.838 --> 00:16:50.898 And six months later, you throw them out. 00:16:51.558 --> 00:16:55.728 You get to write off whatever their remaining carrying value was. 00:16:56.358 --> 00:17:00.618 And then you turn around and install new floors that costs $8,000. 00:17:01.908 --> 00:17:06.378 And now you get to treat those new floors as a five-year asset that 00:17:06.378 --> 00:17:08.178 qualifies for bonus depreciation. 00:17:08.718 --> 00:17:12.498 So if you buy a rental that is already in service, when you 00:17:12.498 --> 00:17:14.568 purchase it, it came occupied. 00:17:15.348 --> 00:17:17.898 And, you know, you're going to be doing a large renovation. 00:17:18.468 --> 00:17:22.128 Doing a cost segregation before it can have a huge benefit. 00:17:23.268 --> 00:17:27.228 The final consideration for if you should do a cost segregation. 00:17:27.738 --> 00:17:31.248 Is, if you are going to be selling a property. 00:17:31.788 --> 00:17:36.438 That you've owned for a while and it has some 1245 assets broken out. 00:17:37.038 --> 00:17:40.848 These are your, what are called personal assets, personal property. 00:17:41.388 --> 00:17:45.678 So this is going to be those items that we could separate with a cost SEG. 00:17:46.168 --> 00:17:49.588 Such as carpet LVP fences. 00:17:50.018 --> 00:17:51.578 Appliances are a big one. 00:17:51.878 --> 00:17:56.618 You might also have some of these assets on the depreciation schedule, 00:17:56.708 --> 00:17:58.658 even if you didn't do a study already. 00:17:59.408 --> 00:18:02.228 If you went through and replaced any of these assets. 00:18:02.928 --> 00:18:06.168 You will probably have appliances listed as five-year assets. 00:18:06.678 --> 00:18:10.368 If you put all new flooring in your accountant should have separated out, you 00:18:10.368 --> 00:18:12.498 know, that carpet as five-year assets. 00:18:13.368 --> 00:18:14.478 When you sell. 00:18:15.228 --> 00:18:19.788 Those 1245 assets are taxed at your ordinary income tax rate. 00:18:20.268 --> 00:18:21.768 And there's not a cap on it. 00:18:22.638 --> 00:18:26.628 Whereas 1250, which is your permanent assets. 00:18:26.658 --> 00:18:28.488 This is what you're building. 00:18:28.668 --> 00:18:30.318 That's depreciated on a straight line. 00:18:30.318 --> 00:18:31.848 Value is considered. 00:18:32.538 --> 00:18:33.978 1250 property. 00:18:34.878 --> 00:18:39.258 Is taxed at your ordinary income tax rate, but capped at 25%. 00:18:40.248 --> 00:18:43.818 So a large concern for people when they sell a real estate. 00:18:44.238 --> 00:18:48.678 That has had large amounts of bonus depreciation taken. 00:18:49.098 --> 00:18:52.068 There have been a lot of these shorter life assets written off 00:18:52.098 --> 00:18:56.118 over the years is when they sell, having to pay those amounts back 00:18:56.118 --> 00:18:57.978 for that depreciation recapture. 00:18:58.308 --> 00:19:00.318 But at the ordinary income tax rate. 00:19:00.648 --> 00:19:03.738 That can be twice as high as capital gains. 00:19:04.638 --> 00:19:07.368 So if you know that that's the case. 00:19:08.598 --> 00:19:14.088 Before that property is sold, you should consider doing a cost segregation study. 00:19:14.538 --> 00:19:16.308 Prior to the disposal. 00:19:16.908 --> 00:19:20.178 Because again, what this study does is goes in and Gibbs. 00:19:20.718 --> 00:19:23.658 A value of the components of a property now. 00:19:24.558 --> 00:19:29.898 If it has figured out that what this property had was five-year carpet 00:19:30.288 --> 00:19:32.538 and it was installed 15 years ago. 00:19:32.838 --> 00:19:36.078 The value of that carpet today might be nothing. 00:19:37.208 --> 00:19:40.598 If it has no value, it won't have any portion of gain. 00:19:41.198 --> 00:19:44.948 So by doing a cost segregation before you sell a property. 00:19:45.368 --> 00:19:50.108 You can potentially shift more of that gain from that higher 00:19:50.108 --> 00:19:53.318 tax 1245 depreciation recapture. 00:19:54.008 --> 00:19:59.048 Back into that maximum of 25%, 1250 gain. 00:19:59.558 --> 00:20:01.268 So another consideration. 00:20:02.258 --> 00:20:04.298 Everyone's circumstances are different. 00:20:04.838 --> 00:20:08.408 And your tax situation can be dramatically different. 00:20:08.888 --> 00:20:13.208 Then the person who was told something was the writer wrong response for them? 00:20:13.748 --> 00:20:19.268 So if you have rental real estate, If you have a depreciable basis on 00:20:19.268 --> 00:20:24.938 a property that's 250,000 or more, I would recommend absolutely investigating 00:20:24.938 --> 00:20:29.318 the idea of a cost segregation study farther with your tax professional. 00:20:29.858 --> 00:20:33.278 And if you're a tax professional listening, who's been a little gun 00:20:33.278 --> 00:20:35.468 shy about cost segregation studies. 00:20:36.008 --> 00:20:39.428 A lot of professionals still think they're very, very expensive 00:20:39.428 --> 00:20:40.778 and typically not worth it. 00:20:41.288 --> 00:20:44.288 That hasn't been the case since T C J a. 00:20:44.738 --> 00:20:48.308 Since we had those new, tangible property regs, there's a lot more 00:20:48.308 --> 00:20:52.808 value of the studies and the price of them has come down significantly. 00:20:53.378 --> 00:20:58.808 If you're a tax professional who is looking for somewhere to get guidance 00:20:58.838 --> 00:21:04.838 and to community and mentorship on all things tax from a point of accuracy 00:21:04.838 --> 00:21:09.368 and cited responses and feedback and support from people who have 00:21:09.368 --> 00:21:11.108 been in the industry for decades. 00:21:11.618 --> 00:21:14.438 Come check out the insight tax community. 00:21:15.068 --> 00:21:18.398 It is an online private community for tax professionals, 00:21:18.398 --> 00:21:19.928 accountants and bookkeepers. 00:21:20.618 --> 00:21:23.948 It was established by four industry educators. 00:21:24.278 --> 00:21:28.208 And it is the only community that requires all technical answers. 00:21:28.658 --> 00:21:32.708 To be provided for questions with some kind of citation or reference. 00:21:33.128 --> 00:21:36.308 We're not letting people just make crap up on Facebook anymore. 00:21:36.608 --> 00:21:41.288 If you're in the insight group, you've got to pick up and put down the receipts 00:21:41.288 --> 00:21:42.698 for whatever it is you're saying. 00:21:43.088 --> 00:21:45.068 So I hope you come check us out. 00:21:46.118 --> 00:21:50.288 As always, I hope that you guys have found some value from this episode. 00:21:50.798 --> 00:21:53.708 Please like subscribe and share. 00:21:54.218 --> 00:21:58.178 Thanks so much you guys, and as always, I will talk to you next week. 00:21:58.919 --> 00:22:01.158 Mhm.