Listen Here
Yonah Weiss is a powerhouse with property owners’ tax savings. As Business Director at Madison SPECS, a national Cost Segregation leader, he has assisted clients in saving hundreds of millions of dollars on taxes through cost segregation.
Yonah has a background in teaching and a passion for real estate and helping others. He’s a real estate investor and host of the top podcast Weiss Advice!
Are you looking for significant tax deductions? Yonah shares how you can break down a property from an engineering perspective and maximize your write offs!
He shares how depreciation is an important part of the cost-segregation process, and it’s not a bad thing at all! It allows you to value your assets and calculate how much they will be worth at certain points in time, which can help with financial decisions down the road.
The more information you have about your tax deductions the easier it will be to make informed investment decisions. If you’re looking to take a big deduction on your taxes, this is the episode for you!
In This Episode
- Background, journey, and how Yonah got to real estate.
- What is a cost-segregation study and how does it work?
- How to accelerate bonus depreciations and the rules around it.
- How does depreciation recapture work?
- Yonah’s piece of advice to accelerate your wealth journey.
Hey everyone, welcome to Today’s Show on Wealth Strategy Secrets. Today we are joined by Yona Weiss. Yona is a powerhouse with property owners’ tax savings. As Business Director at Madison Specs, a national cost segregation leader, he has assisted clients in saving hundreds of millions of dollars on taxes through cost segregation. He has a background in teaching and a passion for real estate and helping others. He’s a real estate investor and host of the top podcast, Weiss Advice.
Yona, great to see you. Welcome to the show.
Thanks so much, Dave. Great to be here.
Yeah, no, awesome to have you on. I know we’ve spoken a bit over the past couple of years, but before we jump into some of these exciting topics around tax savings, right, which is what a lot of investors are always trying to maximize, but for folks who really don’t have any familiarity with you, can you start off by telling us a little bit about your background and your journey? How you kind of got into real estate and where you are today?
Sure, so yeah, as you mentioned in the intro, my background is in teaching. I was actually a teacher for many years, about 15 years, and that’s really been my passion. I started a non-profit organization during that time to help kind of underprivileged families, people going through dire situations like health issues and death in the family, those kinds of things. That’s really been my passion—helping people and teaching people my whole life.
About seven years ago or so, I was kind of struck with the thought, “Wait a second, I have a big family, I’m going into lots of debt, and just trying to keep our head above water, making ends meet.” The teacher’s salary was not really cutting it at the time, so I thought, “Let’s see what other options are out there.” I asked around to a few friends, and real estate kept coming up. I just explored different options, and as it happened—whether by happenstance or Divine Providence, whatever you want to call it—I ran into a friend. I asked him, “Hey, I’m looking to get into something. I know you’re in real estate. What do you think?”
He said, “Listen, I’m a good friend of yours, David, also Dave, a good friend of mine for many years, and I just happened to run into him. I’m a commercial mortgage broker, property manager, and I own a lot of properties. My family does, too. I just stopped working at this company, and I’m going to start a new venture. Why don’t you come and work alongside me, and I’ll teach you everything there is to know about commercial real estate?”
So, I basically apprenticed under him for about eight or nine months, and it was amazing. I just sat in his office every day, or at least four days a week—not every day—but it was incredible. At that time, I learned about commercial mortgages, financing, and everything there was to know. That took different iterations, and I learned a lot of different things. I got my residential broker’s license just to find deals, etc., and did a few fix-and-flips together.
Long story short, I was enjoying it, but I wasn’t really making a lot of money. It takes a lot of time to build up a portfolio, a brand, etc. Then, at one point, I came across this company, Madison. Someone introduced me to the company I’m currently working at, and I’ve been here for five years now. They were looking for a position in the cost segregation division of the company, doing business development.
What I found was that it was more teaching than anything else. I thought, “Hey, I can do that. I can give webinars and teach people about this subject.” Because of my background in teaching, one of my kind of superpowers, if you will, is that I can learn complex things and then be able to teach them.
Yeah, that’s really excellent. There’s this concept we call “Unique Ability,” which is really trying to understand what your true strengths are, your innate wiring. Once you can really hone in on that, it’s amazing how powerful it is because it comes naturally to you. That’s where you see the most results.
But ironically, in school and typical academia, we’re taught to kind of be a jack of all trades and try to get smart in all these different areas. But in business, it’s not that way.
Yeah, exactly. I just kind of found a niche, and it’s been working out really well since then, which has allowed me to explore other opportunities in real estate and other investment opportunities as well.
Well, that’s great. In terms of your own philosophy around investing and building your wealth, do you have a particular investment thesis today, or do you have a strategy in place that you’re focused on?
So, I never really grew up with—it’s an interesting question. At this point, obviously, I’m much more sophisticated than I was even when I was a teacher. As a teacher, I wasn’t really involved much in finance, and I didn’t have a background in finance or investing or anything like that. As many people who grow up in the regular system know, you’re just not taught those kinds of things in school.
But at this point, after having been involved in the industry for many years and having learned so much from the people I surround myself with on a daily basis, I have, like I said, started investing. My thesis, if you will, is really just to find as many cash-flowing investments as I can. And that’s obviously a hard thing to come by, but you have to have capital to invest, and that’s really the start of it—partnering and finding the right partners to create new opportunities.
So, I’m really open to new opportunities, and things come my way all the time. I’ve invested in many different asset classes that just seemed interesting to me. So, that’s kind of my thesis. It’s fluid, if you will.
Yeah, okay. Are those syndications, or are you doing more active-type investing?
They’ve mostly been syndications, so a lot of LP (limited partner) investments in syndications. Although, I have taken it upon myself to start a fund to raise capital for other deals. It’ll become more on the active side, but less active than actually the operations because that’s never been my skill set. However, in raising capital and doing things like that, the investor relations side is definitely much more up my alley. So that’s actually a direction I’m heading as well.
Oh, that’s great! I didn’t realize that. Yeah, I mean, it’s interesting, right? Because as you look at a particular investment thesis, we’re trying to identify these asset classes that are really asymmetric in nature—right? That have low risk, are counter-cyclical to the markets, have a cash-flow component, and some kind of upside on the back end. But what’s interesting as well is that I think a lot of people just don’t really look at it from this lens: taxes. Taxes are actually the number one wealth destroyer that’s out there—bar none. It’s the biggest line item on your income statement.
There’s a sobering statistic I’ve heard from a top CPA that says if you think about it, you could potentially work four to six months out of the year for free, just to pay your taxes. That is really sobering to wrap your head around—to just think that you’re paying that much in taxes and that much of your time.
It’s crazy. It really is. That was one of the things that really stood out to me when I first read Rich Dad Poor Dad. That statement kind of jumped out at me: people do the craziest things just to have a job. That was one of the things that triggered it for me, and I understood how taxes work—especially in relation to real estate. That’s why I’m really so passionate about cost segregation and teaching people about it. Most people hear about real estate investing and the tax benefits that come along with it, but they never really get past that. They don’t go too in-depth into it to understand what all of those tax benefits really are.
Okay, so perfect segue, Yona. Let’s jump into it here. I think we have a lot of listeners who are new to investing, new to real estate, and everything. So why don’t we just try to break this down for everyone? If you were investing in a multi-family property or something, talk to us about what a cost segregation study is and how it works.
Absolutely. So, let’s just take a step back a little bit. To understand what a cost segregation study is, I think we have to first understand what depreciation is because cost segregation is just an advanced form of depreciation. Unlike the name, depreciation is actually not a negative thing. The definition, if you look in the dictionary, may mean something is going down in value over time. However, from a tax perspective, the IRS borrowed this term to give a real estate tax deduction based on the concept that things go down in value.
When you buy a residential, commercial, or any type of investment property—besides your personal residence—you’re able to take a deduction from your income tax called depreciation. It’s based on the idea that things go down in value. However, it’s more of a borrowed term than anything else because it starts the day you buy the property, not the day the property was built.
So, if you buy a property built in 1975, your depreciation starts on the new schedule of 27.5 years for residential properties or 39 years for commercial properties today. That’s an amazing thing. When you sell it, the new buyer starts the whole schedule over again based on their new purchase price. It’s not intrinsic to the property—something really important to understand—but it’s probably the most important tax deduction out there.
Now, what we do with a cost segregation study is a weird name, but essentially, what we’re doing is breaking down the property from an engineering or construction perspective and showing how different components actually depreciate faster than that 27.5 or 39-year schedule. This means you can take a tax write-off of certain components over a faster period, such as a 5-year, 7-year, or 15-year period.
Essentially, that’s what we’re doing: coming into a property, breaking it down into its individual components, and creating a very detailed report that shows the value of all those components—like the walls, doors, windows, carpet, cabinets, countertops, shelving, window treatments, and every tiny detail down to the bolts and screws. We show the actual value of all those individual components based on the purchase price you paid for it.
It’s actually quite complicated, because we’re not talking about new construction, where you know exactly what the cost was for everything that went into building it. We’re talking about buying an existing property and reverse-engineering how all those individual components add up to that purchase price.
Make sense. So, I mean, why is the government overall actually giving a tax deduction? Why are they giving a tax deduction on this?
You know, it’s a great question. I think there have been a lot of theories around that. I know Tom Wheelwright, in Tax-Free Wealth, talks about the fact that the government incentivizes certain investments or certain types of businesses that contribute to the economy in different ways. Real estate definitely contributes to the economy, and so giving certain tax deductions allows those investors to take that money and reinvest it. It simply drives so many different factors in the economy, as well—besides just providing housing, providing work and jobs for so many people. I think that’s probably the biggest reason why. However, it may not be the case that the people passing the laws are real estate investors themselves and trying to incentivize themselves, which, you know, I wouldn’t be surprised by, but that’s certainly the case.
Right. Yeah, it’s actually a tax incentive because we’re partnering with the government, right? Not only is it helping the economy, but we’re providing housing for people, and that’s what the government wants you to do. So, if you align with the things the government wants you to do, you get some incentives in that manner.
Let’s just jump back a second. I think we skipped over an important piece, too. I just want to add a little more clarity. So, we have this concept of depreciation, right? Would you explain for commercial and residential how you can do a cost segregation study to account for all these different items? But how about we talk specifically about bonus depreciation, the rules around that, and accelerating it?
Sure, so bonus depreciation was a rule that was introduced or adjusted really from an original law back in the 2017 Tax Cuts and Jobs Act. It used to be something that was strictly for new construction properties, where developers could take a tax deduction of a certain percentage of their construction costs.
However, what happened in 2017 was unbelievable for the industry. It introduced a law called 100% bonus depreciation. What that says is that once you’ve done a cost segregation study and allocated these components to faster schedules, like a 5-year, 7-year, or 15-year schedule, you now have the ability, instead of spreading that out over those respective timelines, to actually take the lump sum of those accelerated deductions in the first year—100% of those deductions.
Just to illustrate what that means, take a quick illustration with really round and simple numbers. If you buy a million-dollar property and you were to take straight-line depreciation, meaning not doing a cost segregation study, just spreading it out over a 27.5-year period, your depreciation deduction would be approximately $30,000 a year.
Simple math: we have to subtract a small amount for land, always. Land does not depreciate, but the rest of the building and all the components do. So, if you do a cost segregation study and apply, let’s say, 25% of the cost of the building to a 5-year or 15-year schedule, instead of taking $30,000 a year, you’d be basically doubling that in the first five years. You’re taking about $200,000 extra in the first five years. Instead of $30,000 over the first five years, it’s approximately $60,000 to $70,000.
That’s a great tool to have—create more deductions, reduce your taxable income, and create more cash flow. What bonus depreciation says is to take that whole $200,000 and take it in the first year as a tax write-off. So, that’s literally game-changing. If you think about the ability to reduce your taxable income and not pay taxes, this is the number one contributing factor to that.
Absolutely. I think this is really interesting. When you look at the cycle of that, right? And coming back to wealth strategy— as I’m doing my wealth strategy and talking to investors—there are some investments out there that have longer hold periods, 10 years or maybe more, things like that. But look, if you’re doing multi-family syndications, just like you’re talking about, every time you acquire and exit a property, you completely start that clock over again on the whole bonus depreciation.
Exactly. Which is crazy. That just creates these deductions, like you said, and it allows people to have an investment that is basically a tax shelter for the life of ownership, the lifetime investment.
Right. And let’s talk about the other kind of piece that doesn’t get as much attention as well. Let’s talk about when you do exit and the recapture. How does depreciation recapture work?
Excellent question. This is one of the biggest misconceptions or misguided topics that I see so much misinformation about out there in forums and discussions. Things like that. So, I’m glad you brought that up.
What recapture tax means is that when you sell a property, you’re going to be subject to a tax on the amount of depreciation that was taken. It does not mean that you have to pay back all the depreciation. First of all, you’re never going to have to pay it back—it’s subject to a tax.
Second of all, as I’ll talk about in a second, there are many strategies around ways to actually defer or reduce that recapture tax upon the sale as well. But simply put, when you sell, just like you have a capital gain, which everyone understands, if you make a gain on the sale, you’re going to be subject to a tax on that gain.
So, recapture tax is considered an unrealized gain because, if you’ve taken these deductions, it’s lowering your tax basis. You’re now going to be subject to that tax on the sale. It’s actually taxed in three different ways, which means there are different levels that it’s taxed on certain components or certain amounts of that recapture tax.
It’s taxed at ordinary income tax rates, and certain components are taxed like a capital gain, or a 25% capped tax rate. There’s an even third component, which I’m not going to talk about because it’s kind of like a sliding scale, but it is pretty complicated.
However, like I said, deferring that is probably the best strategy you can have if you can do that through a 1031 exchange or through other methods of deferring that tax. As well as other methods, like we talked about before, having other losses from investing year after year into a new property. You may be able to have enough deductions or losses from the cost segregation done on a new property to offset the gain—or the losses, excuse me—the passive gain of that recapture tax upon the sale.
What if everything you thought you knew about investing was wrong? Would you like to create a wealth strategy like the top one percent have and get exclusive access to top private equity deals that provide downside protection, tax efficiency, predictable cash flow, and have a lucrative upside?
Discover how with the Pantheon advantage and join our investor club today at pantheoninvest.com right now.
Thanks for that. I mean, that is excellent because, you know, that topic requires a lot of clarity, and I think you’re right. There is a lot of misunderstanding in the marketplace as to how recapture works, or in some cases, people aren’t even aware of it. Then, you know, they’re kind of surprised on the back end and they don’t have a strategy in place in terms of how to handle that.
Would you say, if you were to tell a real estate investor, is there some kind of range? Like, let’s say, just for round numbers, let’s say you had a hundred thousand in depreciation that you took and that recapture would be a tax of—you know, is there a range or a percentage that you could roughly point out?
It’s pretty complicated because, again, like I said, each person in their individual case, the actual calculation will be different. But simply put, if, let’s say, you take 20% of your depreciation, let’s go back to our example, that million-dollar property, right? And you had two hundred thousand dollars, you took the bonus depreciation, and you took a 200,000-dollar deduction in that first year, and you go to sell the property a few years later, you’re going to be subject to taxes on that 200,000. So, a portion of it will be taxed at a 25% rate, and a portion of that will be taxed at your ordinary income tax rate, whatever that is.
Right, yeah, and this kind of goes also into our overall comprehensive wealth strategy, right? Which is having an actual proactive tax planning strategy, right? That, you know, you’re constantly looking at the entire picture of all your different investments in your portfolio, how they kind of work together, you know, what your income is in a certain year, right? So you can manage when sales happen.
It’s interesting because some people are, you know, afraid of the tax consequences, whether that be selling something from the stock market and trying to reposition assets into, you know, real estate because they say, “Well, you know, I’ve got a taxable gain over here that I have to pay for.” And then if I come into this, there might be some recapture, you know. Where am I going to really end up, right?
But if you do take the time to have this proactive tax strategy, you can actually mitigate all of that. And technically, the goal is actually to get to zero. If you are an investor, you can get to a tax rate of zero by using these strategies.
Right, and I think that’s probably one of the most unknown things about the cost segregation, is that point that you just mentioned there. If you are reducing your taxable liability, you may actually be reducing your overall tax rate down so low that—and this may sound a little strange to some people—that may actually provide certain people with other tax credits and other things like that. Even though you’re making a lot of money, you’re just not legally taxed on that because of all these deductions. And then maybe even eligible for other types of, you know, benefits.
Right, and do you do just cost segregation studies for real estate? Have you looked at any other asset classes, or like, you know, oil and gas, or other asset classes?
Not personally.
No, not really. I’ve focused on real estate, many different asset classes within real estate. So I’ve invested in, you know, self-storage, mobile home parks, RV parks, and things like that besides multi-family and single families. One thing I’m focusing on is actually short-term rentals right now, like an Airbnb property. But no, oil and gas is not something that I’ve looked into.
Yeah, it’s just super interesting tax breaks. Right, you know, we’ve been working on this asset class this year, and, you know, you’re able to actually offset active income, which is really huge right on the front end. And that gets into, you know, some more complexities around the tax code with depletion and different things, how they offset that as well.
But can you tell us, Yona, you know, is there some type of parameter people could estimate? Right, so if you’re, let’s say, building out a model and trying to understand, you know, again, like tax consequences, you might have invested in a syndication. You know, would a multi-family, say, multi-family syndication roughly be maybe 60 to 80 percent of your investment or something? I mean, is that fair to say that you would have bonus depreciation applied to, or do you have some type of range?
Well, that actually is going to depend on several factors. And so I’ve seen, and I’m sure you’re referring to, you know, we’ll see all these investment offering memorandums and things where people are pitching a certain amount of bonus depreciation that will cover your investment and things like that. It actually depends on a few factors, and one of the biggest factors is the amount of equity versus financing in that deal.
Because the depreciation amount that you can take, the total property depreciation, is based on the purchase price. Okay? Which means if you buy all cash, for example, then the proportion of depreciation per your cash or equity investment is very, very low. Okay? However, if you’re financing that deal, that increases the amount of dollar per dollar of your equity investment to your tax deduction.
So just to illustrate that again, let’s use our example, a million dollars. Right? Let’s say you bought all cash, and you’re taking 25 percent in the first-year bonus depreciation, right? You’re getting $200,000 or $250,000. Well, if you paid all cash, you’re only getting 25 percent of your investment back as the bonus depreciation.
However, if you bought that same property with a 75 percent loan-to-value loan, right, then you’re only putting down equity of cash of $250,000, and if you get that $250,000 bonus depreciation, you’re going to be getting 100 percent of your investment returned as a tax deduction in that year.
So leverage is a huge factor, and I see a lot of people making a mistake in this and just assuming that every deal is going to be exactly the same when, in fact, you may be having a lower loan-to-value. Maybe actually much, much more value in terms of the return on the investment and things like that. Having lower risk and maybe investors are raising more equity for CapEx or for just extra reserves. And the more equity that’s there is actually going to reduce the amount of that ratio bonus depreciation.
Right, no, that’s a great point. What would you say to investors? I mean, we have a lot of investors who might have had a liquidity event, maybe selling a business or something, or, you know, they had a big year with high commissions or something like that with their income. Are there any asset classes or things to look at, you know, if they were trying to really take advantage of the bonus depreciation and tax efficiency out of certain asset classes?
So, unfortunately, you know, this is a big misconception as well that people don’t understand, is that the real estate or rental income that you have is kind of treated differently than any other type of income or other types of gains. Right? Real estate gains or capital gains, and again, real estate income are kind of treated in a separate bucket, a separate category. Which means that this depreciation is great and the conservation is really a great thing. However, there are limitations, meaning you’re only going to be limited to use those deductions against any passive gains or rental income, which the IRS treats as passive income.
Unfortunately, if you have a gain from the sale of an active business or stock sales or things like that, those are treated as active, and unfortunately, the depreciation cannot offset that unless you qualify as a full-time real estate professional. Which means that either you or your spouse have a full-time job in, you know, renting, brokering, managing, etc., real estate. And that being the case, you know, real estate for high W-2 earners investing in real estate is great because at least the returns that you’re getting from that investment are going to be, like we mentioned, a tax shelter and are going to be covered by that depreciation. But you’re not going to be able to use those deductions against any other source of income or other capital events, like you mentioned.
Right, yeah, it’s really an entire phase around basically asset repositioning, right? Because, you know, we’re all taught from Wall Street that the best thing we could do is buy stocks, bonds, and mutual funds, right? And then we’ll have another bucket for, you know, annuities and bonds and everything, and that’s, you know, the safest way to invest.
But I think as you start to understand some of the, you know, multi-dimensional benefits of real estate, some of these other asset classes, and everything, and you start to reposition your assets in this way, and then you start building up your passive income, right? And as that passive income starts to grow, small on the front end, but before long, you’re all of a sudden paying your mortgage with mailbox money that’s coming in, you’re not having to do anything for it.
And oh, by the way, you can completely offset that income with these gains or the bonus depreciation that you’re talking about from here.
Right, 100%.
So, you’re kind of like going through this whole process of trying to really reallocate where your income is coming from, right, over time.
Yeah, that’s exactly right. And, you know, that’s part of the strategy, like you’re talking about, of wealth building and the, you know, financial literacy experience, which takes time. And you learn as time goes on, and hopefully having the right advisors and the right people guiding you in the right way to do it and grow your wealth in the best way possible.
Yeah, absolutely. And, you know, really, I really applaud, you know, what you’re doing, Yona, because, you know, education in the space and financial education, it’s really, you know, part of our mission as well. It’s, you know, to really help people figure these things out, right, and provide some facts and some objective data points so they can make intelligent decisions.
Because everyone, you know, we just keep getting brainwashed by, right, by Wall Street, saying this is the only thing you can do with your money and that’s the smartest thing. So it really takes a lot of courage to go against the grain. I mean, I was just talking to an investor last night that’s like, “Well, it all makes sense. We have some investments. It’s starting to, you know, we’re seeing the effects of it, but it’s still pretty bold to go to your, you know, your broker, your fund, or whatever, and go liquidate a bunch of funds, you know, and have that tax consequence and the thing, you know, come together.”
So, you know, getting really good advice is super key. And then, you know, I gotta tell you, also, I mean, it’s amazing. Every time, you know, tax year comes out, and you see this bonus depreciation, like in real time and how it works, you start to see your marginal effective rate, you see your AGI, and then you get down to your marginal effective rate and then the net amount that you have. And it’s like, I mean, it’s really powerful.
Yeah, exactly, especially when that net, is negative, right?
Exactly, and, you know, I mean, frankly, that was the entire controversy. I mean, you know, not, not, this is not a political statement by any stretch, but, you know, why they were tracking down Trump and saying, you know, why don’t you share tax returns, or he didn’t have any tax liability, right? Because he understood the strategy, and it was actually being, you know, the taxes were being offset by his real estate, you know, on the income he was making from his businesses.
So it’s all just about being educated. But you do have to be, you know, bold enough to go against the grain and try these things, you know. And I encourage investors to try it. I mean, you have to take action, right? If you don’t take any action, then the knowledge isn’t really that powerful. But once you take the action, you start to see, how some of these things really work, you know. It’s, you know, that’s a huge light bulb moment for a lot of people.
Yona, also, can you tell us about—so now, you know, I think we’re all excited that bonus depreciation is super great, but tell us what’s happening with it lately, right? Because it is, subject to, phase out here over time. So can you give us that kind of time horizon and your thoughts on that?
Absolutely. So, as we mentioned, it was introduced in the 2017 Tax Cuts and Jobs Act, and when that was introduced, it had a timeline, meaning it had a sunset in 2023, which is coming up soon.
So, 2022 is the last year we can take advantage of the 100% bonus depreciation, and then it will start to phase out by 20% each year over the next five years. In 2023, if you buy property and want to use bonus depreciation, you can use 80% bonus depreciation, meaning 80% of those accelerated deductions you can take in the first year, and then 20% you can still take on the faster conservation schedules.
But, you won’t be able to take the 100% of that deduction in the first year. Phasing out by another 20% each year. Whether or not that will change depends on elections in November 2022, which may bring changes. I think this may be one of the things on the ballot, and if it hasn’t been discussed yet, it will definitely come up.
Yeah it will be interesting to see how that plays out and you know which Administration is is in office to you know push which agenda right?
The real estate market has gone crazy over the past five years, and I believe the 100% bonus depreciation has been one of the main contributing factors. Many people are investing simply for these tax benefits, buying properties. I get calls all the time, especially toward the end of the year, from people needing to buy a property to get the bonus depreciation before the year ends. The volume of transactions over the past five years is unbelievable and continues to increase each year, even throughout the pandemic. There were a few months in 2020 when people were waiting to see what would happen, but once everyone realized deals could still happen, it went full force again. 2020 was an incredible year.
Right, I think there really is a need for it because we try to look at asset classes that are very supportive of strong macroeconomics, where there’s a supply-demand imbalance. Even if you put all the builders in the country to work today, they still cannot keep up with the demand that’s out there in the next decade.
I definitely foresee this as something that could continue in the foreseeable future. We’ll have to see on the 100 percent.
One other key point here that investors may not be familiar with: can you talk about the carry forward of the losses as well?
Absolutely. That’s probably one of the biggest things: having the carry forward, which simply means that if you have more deductions than income, any of those losses will carry forward. You can use them next year or any future year after this. So, you don’t lose out. Some people think, “What if I can’t use the deductions? Do I lose out?” The answer is no. They will carry forward, and there’s no deadline for that. Those losses will just be on a line item on your tax return, like an imaginary bank account of potential deductions, until they’re used up or until you sell the property.
That’s when they’ll be released, which is another amazing thing. We talked about the recapture tax. If you have a big amount of these carry forward losses upon the sale, those losses will offset the gain from that recapture tax. Again, it’s just another way to balance that out and offset some of it. That’s a huge factor.
Right, so it becomes actually less important to do something like a 1031. If you have enough of these losses that you’re accruing every year, it’s just a rinse-and-repeat strategy. As long as you continue buying assets, you will get that loss every year.
Absolutely, yeah, exactly. I think that’s another thing you talked about with Trump before. That was another huge thing—he had billions of dollars of these carry forward losses that were just sitting there. Some of them weren’t necessarily from rental properties; some could have been from failed businesses, and things like that. Every great entrepreneur has failed businesses, and those can accrue losses that will actually benefit you from a tax perspective.
Yeah, absolutely. Jonah, if you could just give one piece of advice to listeners about how they could accelerate their wealth journey, what would it be?
The biggest advice I always give is to continue education. There are so many little things, like cost segregation, that you’ll never learn about if you don’t look into what’s out there. So, listen to podcasts like this, go to meetups, seminars, conferences—whatever you can do. There’s so much information out there, whether you go to YouTube or elsewhere. It doesn’t really matter. Just continue your education every day. Set aside some time to learn something new and try to apply it. That’s really the power of education—when you can actually apply it.
Love it, that’s excellent. Thanks so much for coming on the show today. Really enjoyed the conversation, Jonah. If folks want to reach out, learn more about cost segregation for their properties, or connect with you, what’s the best place?
You can always find me on LinkedIn; that’s where I’m most active. Or, you can go to yonowice.com.
Excellent. Thanks again for coming on the show, Jonah.
My pleasure, Dave. Thank you again for having me.
Important Links