Mark Perlberg
if you’re my client or you know anything about real estate investing tax strategies, I’m sure you’ve heard about cost segregation. And in the first few minutes, we talk about some of the basics, but then we dive into a lot more detail, so stay tuned. Even if you’re one of our clients that know about cost seg, stay tuned and you’re going to get some great nuggets of information. Some of the things we talk about are what type of investments are going to create the most bonus depreciation after we’ve ran the cost segs. And then I riff a little bit on what do we do after we’ve ran the cost segs because tax planning for real estate investors, or any type of clients, is about more than just doing cost segregation studies.
Mark Perlberg:
We want to look at all of your sources of assets and income, current income and potential future income. And by doing this and evaluating all the current and potential future taxable events, we can do some strategizing and take advantage of you being in potentially a lower bracket with the cost seg and think about the timing of all different taxable events to really set you up for success, not just to save money in the current year, but also create future tax savings, tax savings in the future, based on the actions we’ve performed in the current years of those cost segregation studies, where we get the 100% bonus depreciation.
Mark Perlberg:
So stay tuned. There’s a lot of good information here, and we talk about what we’re going to see in the future as bonus depreciation phases out. And we’re also going to discuss some of the things that Yonah Weiss has done to really make his name synonymous with cost segregation. Most of you guys have heard of Yonah Weiss if you’re interested in cost segregation and tax strategies. But if you haven’t, this guy is practically synonymous with the phrase cost segregation, and he has really built a strong brand and meme for himself by generating lots of content, lots of networking, and just being a great resource. So he talks a little bit about that and his journey as a businessman and a subject matter expert. So even if maybe you know everything you know, but you’re still trying to build your brand, you might get some good insight on that topic as well. Yonah Weiss is world class at this. So stay tuned. There’s going to be some great stuff. Subscribe to our channel and our podcast. We have great stuff coming your way, and I hope you enjoy this conversation.
Mark Perlberg:
All right, cool. So let’s get started with our conversation. Yonah Weiss, thank you so much for joining us today. For those of you listening live and those of you listening to the replay, Yonah Weiss has been a fantastic resource for me and the whole world of real estate investing. I’ve never seen anyone more synonymous with tax strategy than Yonah Weiss. I call him the man in black. He is the cost seg king, and he talks all about cost segregation. What’s interesting about you, Yonah… And I want to talk about more than just segregation and real estate and taxes, so we’ll talk about how you built your brand. I’m interested in how you’ve networked and done all these awesome things.
Mark Perlberg:
Yonah, to me, you were like… I remember you were like Lil Wayne in the early 2000. Whenever I would hear rap music, Lil Wayne would show up. He was in everybody’s song. He knew everybody. He did cameos everywhere. And eventually, you’re like, “Who is this guy?” You knew everyone on LinkedIn that I had connected with as a real estate investor. I eventually said, “Who is this guy?” This was a while ago, where I had maybe three clients, and you gave me a good amount of time, and I really appreciated your generosity at the time.
Mark Perlberg:
The plan involved a cost seg. Unfortunately, the deal didn’t go through, but you helped me out with estimating the losses we could’ve created with the cost seg and the write-offs. Since then, Yonah’s been a really great resource and colleague. And today we’re going to talk about cost segregation and some ways that we can use it and take advantage of that and some other strategies we’ve seen. Yonah, in your own words, can you introduce yourself in 60 seconds or less?
Yonah Weiss:
Absolutely. Well, first of all, thank you so much, Mark, for hosting me. Very kind words and a great analogy. Wayne? I never would’ve thoguht of that one. But it’s like, if you put yourself out there, this is a really great way to brand yourself, and something that, yes, it’s true, I did. And showing up on podcasts and being very active on BiggerPockets and all the different social media, especially LinkedIn, was extremely beneficial.
Yonah Weiss:
For our business… And I work for a company called Madison SPECS, we’re actually the largest national cost segregation company. And I found on early on, in working for them about five years ago, that very few people knew what this thing called cost segregation was. My background is in teaching, and I basically took upon myself to just spread the word and talk about it to everyone far and wide. So that meant going on podcasts and doing webinars like this or others. And since then, I’ve done over 300 podcasts, and that’s before hosting my own podcast, Weiss Advice. And yeah, that’s what we’re doing. Madison SPECS has, to date, done over 20,000 cost segregation studies across all 50 states, in every asset class. And just happy to be that industry expert and showing up just to add value to everyone where I can.
Mark Perlberg:
Yeah, awesome. I talk about cost segregation every day of my life.
Yonah Weiss:
That makes two of us.
Mark Perlberg:
I talk about cost segregation more than my family, more than my cat. But to maybe a beginner audience, can you give us maybe a very quick overall summary of what cost segregation is?
Yonah Weiss:
Absolutely. You being a CPA, you talk about cost segregation because it’s a tax strategy. Not all CPAs are familiar with all the tax strategies out there, especially those that are related to real estate, because there are many CPAs that are just number punchers, they’re just plugging in numbers. But someone who’s actually taking a proactive role to try to have a little more strategy involved, that’s something that you do. So cost segregation is a… I don’t know if you can hear those parakeets chirping over there, but I think I need to put them to sleep because they’re making a little noise.
Mark Perlberg:
You’re fine.
Yonah Weiss:
Huh? One second.
Mark Perlberg:
You’re fine. They weren’t too bad. I heard them a little bit, but we’ll be all right.
Yonah Weiss:
Okay. I’m just trying to call someone to put them to sleep or something. Yeah. I had one time I was doing a webinar, and someone’s like… tapped in the chat, “Whoever’s birds are chirping, please mute yourself.” I’m like, “That’s me.” I was giving the webinar. So if you guys hear the birds chipping, I’ll have to get them quiet. Anyways, cost segregation is a tax strategy that allows you to take depreciation deductions at a faster rate, so essentially taking from the pool of potential depreciation deductions, instead of taking a little bit each year, you have an opportunity to tap into those deductions and pull forward a lot of them so that you can use this tax strategy to get more deductions up front. I mean, as simple as that. It’s done through a very detailed engineering report of the property that breaks down the property into its individual components. But in short, it’s a tax strategy that allows real estate investors to get more deductions in the early years of ownership.
Mark Perlberg:
Right. Absolutely. And so what we do with our clients is we take real estate assets and we look for opportunities where those losses are valuable. And what we can do is, if we can treat your losses as nonpassive, then we’ll accelerate depreciation. And then with those nonpassive losses, use them to offset other sources of active income, such as that from your W2 or 1099 income. Two ways we can do it, real estate professional tax status, if you work full time in real estate, there are other variables, but I don’t want to take you down too many rabbit holes, or if you materially participate in a short-term rental and the average length of days is seven days or less.
Mark Perlberg:
You want to see a decent amount of purchase prices and basis in the property to justify that so we can create enough tax savings to justify the extra procedures and the prices for the study. So when we think about the value here, let’s break down the numbers here. What’s a good way of… My rule of thumb has typically been around 25% to maybe 30% for some of the properties that have a little more unique features that’ll qualify for five… more personal property in the properties, like short-term rentals come with furniture, so we add another 5% to our estimates. But what do you typically see, and how would you potentially estimate how much is going to qualify for this bonus depreciation that we write off immediately with cost seg?
Yonah Weiss:
Yeah. I always like to do a free estimate upfront so we can show the potential tax savings. But you’re absolutely right, especially when you’re dealing with short-term rentals, we have a lot of furniture, fixtures, amenities, and that’s what we’re doing. With the cost segregation, as you mentioned, the bonus depreciation, the upfront write-offs are based on that personal property, the property that depreciates on a five-year schedule. So it is, on average, probably for the short-term rentals where you actually own all the furniture, probably around 25% is a pretty good, rough number. So that allows you to take, if you buy a property for a half a million dollars, I mean, you’re talking about, after you’re taking off a small amount for land, you’re talking about maybe 70 to $100,000 right up front of tax write-offs. So I mean, that can be a huge game changer to lower your taxable income and potentially have losses that can carry forward or can be used against other income.
Mark Perlberg:
Yeah. So here are some things we want to think about too. There might be some instances where you might be a little disappointed by your [inaudible 00:11:17] depreciation, and that might be if you are investing in an expensive area, like if you’re investing somewhere on the west coast of California, on the beach, or an expensive, fancy beach town. What’s going to happen is, when the appraisal comes in, they’re going to assign such a high value to the land, there’s not going to be a whole lot of additional building basis for you to get those write-offs. It still will likely be worth it, but that’s an instance where the amount may go down. And here’s something really cool, though. I mean, this is involving cost seg, but there’s something called a C-store. And basically, if you are what the IRS calls something along the lines of a distributor of fuel, you could potentially write off 100% of that building in year one, without even doing a cost seg, which is pretty awesome as well.
Mark Perlberg:
At the end of the day here, the opportunity when you own real estate buildings is the massive amount of depreciation that you can write off. Even if you’re financing the building, you’re still writing off oftentimes more than you’re putting down into the property. Thinking about how the numbers play out, one of the things we’ve been chatting about is, what type of assets potentially can create more write-offs than others? What kind of buildings? And what have you seen with mobile home parks?
Mark Perlberg:
Yeah. It’s an amazing thing. Mobile home parks are one of the interesting asset classes, and RV parks as well, that allow you to take a huge amount of bonus depreciation. So when you think of a mobile home park or a mobile home community or whatever you want to call it, you’re like, “Well, what do I even own?” Oftentimes you’re buying a property and you’re like, “Well, it’s just land,” especially if the tenants own all their homes, which is very often the case. But what you’re not thinking about is that there’s a category of depreciation called land improvements, and so that’s on top of the land. And if it’s paved roads, you have concrete pads under each home, you have landscaping, fencing, water drain systems, et cetera. All of that stuff is considered land improvements. And essentially, that’s the majority of the value of what’s going into the property.
Mark Perlberg:
That being said, there’s also an opinion, which not all accountants will agree upon, but there is some tax literature surrounding this, that some consider the mobile homes themselves as five-year personal property, which means, if they are still considered quote, unquote “mobile,” meaning if they still have the wheels on them and you just pull back the skirt and you can see they are potentially moveable, they can be treated as five-year property. Which means you can potentially have, besides the land allocation, which again, can be 5%, 10%, 20, 30%, whatever that is, the remaining basis can literally be 80%. And I just did one today-
Yonah Weiss:
Wow.
Mark Perlberg:
… where they had literally 88% of the tax basis was going to the bonus depreciation.
Yonah Weiss:
Oh my God. 88%?
Mark Perlberg:
Yeah. It’s pretty wild. [inaudible 00:14:36]. Wow.
Yonah Weiss:
But there, there was very little structure. The only thing that was going to the 27.5-year schedule, which is structures, there were no structures on the property that were owned. But the only thing that was going to that is the infrastructure utilities, so the water lines, the gas lines, septic and electric lines, those are considered infrastructure. The value of those, per square footage or per unit, is going to be the only thing that’s going to be in that 27.5-year depreciation schedule.
Mark Perlberg:
Wow. So imagine you put $200,000 down into a $1 million property and you write off $887,500 in taxes. That’s crazy. Let’s say you’re in a 30% federal tax bracket. So it’s like your deduction is more than your down payment. I mean, your refund that you can generate is more than your down payment here. Or break those down. Let’s say you put maybe not 200, but let’s say you put $50,000 down and just shrink the numbers in proportion here, but that’s incredible. And when you think about the compounding of your wealth, you get your money right back in the form of a refund. The BRRRR strategy is really popular, where you get your money back in the form of refinancing, and you can still refinance too. So you get your money back in the refund and in the form of doing a BRRRR and maybe improving some of the valuations there as well, which is just amazing.
Yonah Weiss:
Yeah, it’s incredible. And to think, especially when you’re giving, as you mentioned before, the real estate professional status, where you’re able to use those deductions against any other source of income you have. It’s not just about creating these losses. It’s about actually saving a huge amount of potential money that will be going to Uncle Sam, but you can use that to reinvest and just buy another property. I have plenty of clients that tell me the amount of money that I saved on using the cost irrigation they were able to put a down payment on another property. So, I mean, that’s just incredible.
Mark Perlberg:
Yeah. To me, that’s really the purpose. So if you take your tax saving and you say, “Oh, I’m going to rich,” and you buy yourself a Lamborghini and a fur coat, you’re losing future depreciation. So if you’re not putting that money back into your business endeavors, you’re going to find yourself with less write-offs in the future. But if you’re smart and you put it into more real estate, then that gives you depreciation and you run more cost segs, and you see that compounding long-term growth of your wealth over time.
Yonah Weiss:
100%.
Mark Perlberg:
Another thing we didn’t talk about, which is interesting, is not as common, but we have taken advantage of this with clients. Let’s say you don’t have real estate professional tax status, let’s say you don’t have short-term rentals, how can we also use cost seg? Well, there are two other instances that I’ve seen. One is, if we have the rentals operating at a profit where the revenues exceed the expenses, after we’ve looked at how all the numbers come together, we can use a cost seg to offset taxation on their rental portfolio. So sometimes we see this if you have a collection of older properties or you’re a wholesaler and you get some cheap, $30,000… You have wholesalers getting houses for free. I’m like, “You guys are killing me.” So those are instances.
Mark Perlberg:
And then another thing that we’ve seen is, if you have other sources of passive income, so if you are a passive partner in a partnership… It can’t be a husband and wife because of the attribution roles, but let’s say… I had a client who was a partner in a tech startup, and part of our tax plan was, first, we realized that the prior accountant misclassified his income as active, but it was passive because he was a passive participant. He didn’t materially participate.
Mark Perlberg:
So we reclassified his income from active to passive. And then we ran a cost seg on his long-term rental, no REP status, but we still used those losses to offset the profit that rolled through on his K-1 from the partnership income. So not only did we eliminate the payroll tax with… The prior accountant had it taxable and with payroll tax because he thought it was active income. We classified it as passive, and then we used a real estate laws to offset the passive. And we saved, I believe it was tens of thousands, and we’ll save him hundreds of thousands of dollars with these strategies.
Yonah Weiss:
That’s pretty awesome. That really just goes to show you, when you have a CPA like yourself that’s being proactive and figuring out the different ways that we can utilize and the different strategies we can utilize, it may not be just cost segregation, but it’s combining with other things as well, to make sure that the individual has the best way that they can reduce their taxable income. I love that.
Mark Perlberg:
Yeah. So let’s talk about another thing that is… because I know that I talk about cost segregation all the time, and it is really widely known. So I want to talk about some things that people about a little bit less. In addition to reducing our taxes, obviously, from the write-offs we generate, we also can consider cost segregation as a valuable tool when we dispose of the property. Remember that there are some tax tracks with depreciation recapture, but also, because we have assigned a valuation to these individual items in the real estate, when we look at the recapture, we can sometimes mitigate some of that recapture by reevaluating the value of certain items that have never regained their value in the asset. I’m not sure if I explained that so well, but Yonah, maybe you explain some examples of what you’ve done to help with eliminating the recapture tax on some of these components we’ve identified with the cost segregation study.
Yonah Weiss:
Absolutely. Absolutely. This is a strategy called partial asset disposition, and this is something that… Think of it like this. Once you’ve done a cost segregation and you’ve shown what the actual value of those individual components are… So let’s say you have, I don’t know, a refrigerator, okay, appliances, whatever it is, and you allocated $5,000 to your appliances. Well, that’s showing, from a tax perspective, that it’s being depreciated on a five-year schedule, or if you’re taking bonus depreciation, one year.
Yonah Weiss:
What happens in five years from now, when you sell the property? Normally, you would have a depreciation recapture tax on whatever amount of depreciation that you took, and the recapture tax rate on those items that are accelerated depreciation, like the appliances, is going to be at your ordinary income tax rate. However, since you’ve already shown that there’s no value because, from a depreciation standpoint, it’s already been fully depreciated, so now, when you do this partial asset disposition, what you’re showing is basically a tax form showing that these appliances have no more tax value. Therefore, they’re being taken off the books and there’s no recapture tax on that amount. And so that’s essentially how it works.
Mark Perlberg:
We don’t really see this opportunity very often with our clients to take advantage of this. At what threshold amount for the properties is it worth, have you found, going this extra step with this analysis?
Yonah Weiss:
That’s a really good question. I don’t know what the threshold is. I mean, again, it’s really going to come back to, is the effort worth the benefit, right, filling out these forms and doing the partial asset disposition? The advantage is, is that if you have the Excel forms and you have… that will give you, with the cost segregation, you already have all those items broken out. So it’s not that much more work than upon the sale to then go ahead and just calculate that. And what that can do, like we said, is to reduce your taxable liability. At what point does it make sense? I guess the question is, at what point do you need those tax write-offs or getting around that recapture tax? I mean, that’s really where it would make sense. So if you’re talking about saving 10,000 or 20 or 50 or $100,000, I think that’s really going to be the question on individual an basis.
Mark Perlberg:
Yeah. I would think that you would want to… I mean, there’s several variables we’d want to explore, right? Like how much is the recapture? What is the potential tax liability? What is their tax rate? What is that client’s other sources of depreciation and income, and then evaluating how much work is it going to be to determine these amounts. How long have you owned the property? If you only owned it for one year, then maybe the valuations haven’t really diminished that much. But if you’ve owned it for 20 years, then you’re going to probably see greater benefit from it.
Yonah Weiss:
Right. And the other thing to consider, I think, is really, do you have other losses in the current year? Meaning the other passive losses that you may have in that same year of a sale, where you’re going to try to use that partial asset disposition. You may just be churning water. You may have enough losses already to offset that tax in the first place, and so it may be just going through the extra effort to reduce that gain. But at the end of the day, you may have enough losses that you may not even need to go through those steps.
Mark Perlberg:
Yeah. Another thing that I forgot to mention… Now, this isn’t common, but we may see an opportunity. A lot of people talk about 1031 as a great way to defer capital gains tax. But here’s another instance where, let’s say, you don’t have REP status, you don’t have short-term rentals, you may, in some circumstances, be able to use cost seg from one property to offset the capital gains from another transaction.
Yonah Weiss:
Exactly.
Mark Perlberg:
Another opportunity there. And that’s why there’s so many ways, especially with capital gains planning, there’s just so many ways to look at the equation there when you evaluate your goals, what you have now, what you will have, what your tax rates will be. There’s a million different variables, and that’s just one… There’s so many. So for some of our clients here, who aren’t… I mean, some of our audience that aren’t CPAs, that’s why it’s so important to talk to your advisor, a qualified advisor, before doing any of this. I got a lead from a prospect who did his own 1031, didn’t ask the accountant.
Yonah Weiss:
Oh, no.
Mark Perlberg:
Yeah. He just read some BiggerPockets articles, which are good, but he made the assumption that that was a good idea, but he already had $150,000 of suspended losses to offset capital gains. Now he’s going through all of the extra efforts and steps to do 1031 exchange, and it’s a waste of time. Some other things that I’m also curious about… well, some other things, some other opportunities with cost seg, and here’s just a little thing is, if you are with succession planning and estates and things of that nature, when someone passes away, and in the last year of operations if we were to do a cost seg, you can actually do a cost segregation study after they have passed away, for that year, and accelerated depreciation in the year of their date of death. And then it still gets stepped up to fair market value to their heirs.
Mark Perlberg:
So if you’re on the fence on whether run one because you’re losing depreciation in the future, there is no future, unfortunately, for that owner. It’s just another opportunity to create some additional write-offs on that return, where some of the downsides of cost seg may be you lose depreciation in the future. That’s not really the case because it gets stepped right up to fair market value.
Yonah Weiss:
That’s huge. Yeah. Just to go on that point for a second. A lot of people don’t think about that. If you’ve inherited a property, right, you can do the step-up basis, meaning you’re going to be able to get the fair market value now. You can do the cost segregation on that new, even though it’s been fully depreciated by whoever bequeathed that to you. You’re able to now take a cost segregation from brand new, based on that new market value.
Mark Perlberg:
Yeah. And they have been trying to change that in proposed legislations because it is a cheat code. Really, you want to talk about a way of trading generational wealth here, I mean, the depreciation starts right back up again. When you think about the tax benefits of real estate, you can’t not talk about depreciation. On a side note though, you don’t get the bonus depreciation if you inherit it, but still, you’re still going to see value from the cost seg, even without bonus depreciation. I’m curious to know, were you doing cost segregation studies before the Tax Cuts and Jobs Act?
Yonah Weiss:
We were, yeah. I actually joined Madison and started the cost segregation about a year before that. So obviously, the Tax Cuts and Jobs Act was huge. I mean, it made a very big difference, especially with the 100% bonus depreciation coming into play. So that was amazing. What was amazing to me, and especially now that we’re talking about next year being… or this year being the last year of the 100% bonus depreciation, is people were talking about, “Well, will cost segregation still be beneficial if you can’t take the 100% bonus depreciation?” And I’m like, “This has been around for decades.” Cost segregation has been around for a long time. No, it will not be as beneficial, but it still will be extremely beneficial.
Mark Perlberg:
Yeah. And that’s something that I’m really interested to see and how our planning and strategies evolve. I mean, maybe you’re not looking at the 1040s of these clients, but well, what I suspect what we’re finding is we’re still getting the properties to operate at a loss, even without bonus depreciation. Correct?
Yonah Weiss:
Yeah, absolutely. And that’s really the point. If you can create a loss, I mean, that’s really where it’s going to be beneficial. And as you know, it’s not going to be beneficial for everyone. Okay? Cost segregation is never going to be the right fit for every single person, but if you can get it done on a property and create that loss, that’s going to be where it’s going to be the most beneficial.
Mark Perlberg:
Yeah. So what’s interesting is, for a lot of our audience, I think that right now, with 100% bonus depreciation, it has opened up the opportunity for lots of people to do cost segregation and to justify those procedures. And even if you have a place that’s 300 to 400,000, you can still create a good chunk of losses and significantly impact your 1040. But what I think… And I’m interested to hear your perspective from what you saw before then. What we’ll likely see is the threshold by which it’s worth our energy to do the cost seg. The value of that property, we’re going to need… It’s going to be less and less impactful on these smaller priced properties, so in order to really see the benefit, either you’re going to have to bigger and/or we’re also going to… We’re not going to see as many opportunity for some of these beginning investors who are getting properties for 200, 300, $400,000.
Yonah Weiss:
Right. Absolutely.
Mark Perlberg:
Yep. What are your thoughts on… I imagine that after Tax Cuts and Jobs Act you saw a whole new group of investors coming through your door to talk about this stuff. And perhaps, in the future, what are your thoughts on the projects we’ll see and the changes we’re going to be seeing in our strategies?
Yonah Weiss:
The biggest thing that I saw is our threshold used to be… We used to tell people all the time, if the property’s purchased for over a million dollars, that’s where it’s going to be most beneficial. And when Tax Cuts and Jobs Act came about, and we’re talking about using %100 bonus, especially for smaller properties and then with short-term rentals and using these strategies, I would say half a million dollars. Cut that in half. And the truth of the matter is, really, even if you go down to a 200, $300,000 purchase price, you’re still going to get a tremendous amount of benefit. Without the bonus depreciation, that’s going to be much less because, again, if you’re only able to take those deductions, again, we were talking about 25%, for example, to the five-year property. If you have to spread that over a five-year period, the net benefit in that first year is going to be much less, okay, and second year as well. So the threshold, like you said, is move back up, I think.
Mark Perlberg:
Yeah. So for some of the audience listening and beginning investors, we have a lot of clients that are beginning investors and who are just now learning about this stuff, this has been… Obviously, I don’t what the future holds for us, but I suspect that we’re going to look back on this time as a golden era for real estate investors, where we look at what you can do with short-term rentals and you look at bonus depreciation, and there’s just an insane amount of opportunity to create tax savings, especially for people who want out of the W2 lifestyle and they want to use these tax advantages to get additional capital and to put it right back in.
Mark Perlberg:
So for those of you guys listening, these opportunities are not going to be as incredible as they are right now. And in the future, you’re going to have to… And a lot of our clients are already moving on to bigger and more lucrative projects with more access to depreciation. They’ve already quit their jobs. They’ve used the tax savings, and we’re working on the bigger projects. But for those of you guys that are getting started, you really want to take advantage of this time because the time is running out, unless we see some changes, and I don’t think we will. I don’t that we’re going to bring back bonus depreciation after it starts phasing out right away. But I mean, I’m not a politician.
Yonah Weiss:
You never know. From what I’ve heard from a couple people who are involved in the space, there has been a lot of lobbying to try to continue the %100 bonus depreciation. I think there’s a good argument that it actually contributed a large amount to the spur of the economy, especially the spur of the real estate industry, which trickles down to a lot of different industries. I mean, think about all the different service providers and all the different vendors and connections and property management, everything that is involved in real estate.
Yonah Weiss:
I honestly believe… And that’s one of the reasons why they introduced the 100% bonus depreciation in the first place, because again, when you get those extra deductions, what are you doing with that? You’re just putting that money back in to buy another property or to do more business or to invest more. That’s why it was created, was to invest more in the economy. I think it did that purpose. So I see a good argument to just continuing that, especially now with how, unfortunately, as we’ve seen in the past year or so, the economy has taken a big hit.
Mark Perlberg:
Yeah. I mean, I would be very interested to hear what kind of conversations are taking place in the political sphere on this topic because at least what I’ve seen with our ability to help our clients flourish and build their portfolios, I mean, the ability to do cost segregation and get bonus depreciation has changed their lives. I did a cost seg with you, Yonah, and we wrote off 38%. It was $280,000 of a cabin. And that client, he got a $60,000 tax refund. He and his wife had W2s and he quit his job. And it’s not like he quit his job so he could be retired and be on the beach sipping margaritas. He’s doing multimillion dollar projects now. I mean, he’s building all sorts of properties and all sorts of creative opportunities, and he mobilizing and inspiring other investors to do cool stuff. So it is really fun to see the impact of these tax incentives and how it helps clients and the economy flourish.
Yonah Weiss:
Yeah. 100%. That’s amazing. That’s an awesome story. I love those stories because that makes such a huge difference for me. So I love when I hear that, that people are able to retire or their spouse is able to retire. And using that strategy, especially with the spouse being the real estate professional, that’s something that I’ve seen. And people aren’t necessarily retiring to just travel the world or sit on the beach or whatever. They’re changing professions, to a certain extent, but doing something that they enjoy. And I think that’s really the main difference. If it is something that you enjoy, if real estate investing is something that will give you more freedom, more financial freedom, time freedom, location freedom, these are things that a lot of us strive for. And what I’ve seen is so many people going down that path and being successful. So good for them and good for you for helping them figure out these strategies that they can do that.
Mark Perlberg:
Yeah. And that’s what people don’t realize, taxes are awesome. Doing tax advisory, I tell people, “You don’t realize how cool it is to do what we do, where we have these incredible impacts on the projection of people’s finances and careers and life path, that they can change their careers and adjust their lives to spend more time with their children, do projects that have a greater impact on the community.” It’s not just about reducing taxes. We can really impact their lives.
Mark Perlberg:
Another thing to talk about here is, what do we do after the cost seg? Let’s say we’re in a year when we’re dropping our clients into a $0 tax bracket. That’s fantastic. And if we get a refund, that’s fantastic, but there’s more that we can do. So one of our strategies is income shifting. You want to shift some income into that year with the losses from the cost seg. Maybe you’re thinking about selling your way out of a partnership. We talked about capital gains planning, combining that with cost seg.
Mark Perlberg:
If you’re in a $0 capital gains bracket, maybe you have a portfolio of stocks that we can start liquidating and take advantage of not paying capital gains tax on that. Maybe even things like installment sales. And we know for the next few years we have enough depreciation and our investment strategy will keep us at a $0 or a low capital gains bracket. The installment sale can eliminate capital gains instead of recognizing all your capital gains at once. So many different ways that we can look at this. Not only are we going to eliminate your taxes in the current year, but we can set you up for success in the future years by shifting some of those income and tax triggering events into the years of the lower brackets. So lots of cool combinations and variables that we look at with our clients.
Yonah Weiss:
Absolutely. No, that’s a good idea. To be honest, that’s really more in your boat. After the cost segregation is done, I take a back seat and wait for the next deal, wait for the next property. But obviously there’s so much more that goes into it, so kudos to you.
Mark Perlberg:
Absolutely. So here’s some things I’m interested to know. Like I was talking about earlier… Let’s shift our energy away from the taxes and the cost seg, and what I’m curious to know is… Back to how I found you, there’s one thing that is so unique about you is that you’re just everywhere and everybody knows you. I’m curious, how have you built this name and brand for yourself? And can you tell me a little more about the benefits that you’ve seen from creating all this content and connecting with so many people?
Yonah Weiss:
It’s unbelievable. LinkedIn especially has been a tremendous resource. One thing that has helped me more than anything else, I think, just the consistency of showing up every day. And I took upon myself about five years ago to… And it was really on a whim. I saw some other people doing it, but it was really just to post some original content, and not just a random link or a random article, something that’s actually thoughtful, thought provoking, whether it’s a story… And stories happen to work really, really well. So I would just post something and do that consistently every single day. So that’s what I’ve been doing, and it just builds on itself.
Yonah Weiss:
But another thing that has been really helpful has been guesting on podcasts, so you’re kind of leveraging someone else’s audience. And I like to look at Vaynerchuk, Gary Vee, as someone I look up to in terms of his marketing strategies. I’ve read a bunch of his books and follow him on social media platforms. And he’s kind of prolific in saying how to do things and what to do. But more than anything, what he’s talking about, if you go deep and you look into the core values that he’s all about is just two things, basically listening, right, really caring about your customers, about your clients, and number two is adding value, right? That’s his book, Jab, Jab, Jab, Right Hook. He wanted to call it, before the publishers cut it down, Jab, Jab, Jab, Jab, Jab, Jab, Jab, Jab, Jab, Jab, Jab, right, like 20 times. And that’s before the right hook because the right hook is the sale, but the jab is just adding value, adding value, adding value. How can I do it? What can I do to help you? What can I do to do something for you?
Yonah Weiss:
And by doing that, what you do is become someone that, like you said, just showing up everywhere, that people see you, they recognize your name. They automatically think, and that’s what the branding does. They automatically see your name, they know what you do. And so my name has become synonymous with cost segregation, which that’s great for our business, and that’s what I do. But really at the end of the day, I’m just out there to try to help people in as many different ways as I can. This is one way, and this is something that obviously it’s a win-win. It’s our business. We have profit, we have revenue from that, but we’re helping people every single day save money and save taxes, and that’s really what it’s all about.
Mark Perlberg:
Awesome. So is there anyone else that maybe was your role model or who you were looking to follow and model yourself after?
Yonah Weiss:
Yeah. I mean, there’s definitely a lot of people, especially when it comes to social media and marketing, digital marketing. I found many, many people over the years that are digital marketers, and I just like to watch what they do because you know every platform’s different, okay? And yeah, maybe just you’re trying to put everything on every single platform, and that could be beneficial to a certain extent, but when you hone in and figure out the platforms and figure out what works the most, the way that you do that is by following people who are successful digital marketers, because they’re not doing what they’re doing unless it’s actually bringing profit to them, right?
Yonah Weiss:
So you’re like, “Okay, this is what they’re doing, this is how they’re doing it, the nuances.” It takes time, but if you’re just doing it consistently every day and learning some of those nuances, it’s a tremendous amount of value. So I don’t know if there are any names specifically that come to mind, but definitely a bunch of people over the years. Ryan Serhant is another great example of just someone that is… Sell it Like Serhant was one of those books that I read early on. It’s just, again, about just being there for other people and going out of your way to… sharing stories and sharing other people’s stories also.
Mark Perlberg:
Awesome. Well, what I’m also curious about is, so you see all these people seeing all these benefits and saving millions of dollars from the cost segregation studies. Do you ever get FOMO? And are you investing in real estate and are you doing anything to take advantage of the tax incentives and advantages of real estate investing?
Yonah Weiss:
Absolutely. I mean, I wouldn’t necessarily say FOMO, but I mean, I would love to be… because I really do love what I do. And so there’s been a lot of… I’ve had conversations with myself and with mentors like, “What should I do? Is this something I should pursue? Should I go into the capital raising? Should I go into the syndication space and become an investor like tons of my clients are?” And really, at the end of the day, I very well could do that, and that may-
Mark Perlberg:
Yonah, I think I lost you.
Yonah Weiss:
Yeah. I lost you for a second. My connection cut out or something. But yeah, I mean, I have invested, I do invest, mostly passively at this point. I’ve been involved on an active deal as a general partner for one multi-family syndication, a very, very minor role. So I definitely have seen the benefits, and I am a very avid proponent of a real estate investing. So big, big fan of real estate investing, investing in multi-family and self-storage and mobile home communities. So definitely trying to diversify there as well.
Mark Perlberg:
Yeah. When I started my practice, I did it originally because I wanted to be a real estate investor. Part of it was I wanted to hang around other investors, and they saw I was a CPA. They’re like, “You must know how to save money on my taxes [inaudible 00:45:36].” I couldn’t see myself paying anyone else to do my taxes after all the work I went through to be a CPA. And I also discovered I was actually passionate and interested in this stuff.
Mark Perlberg:
But now, whenever I think about the opportunity to invest in real estate… And I probably will get back into it. I just have one deal right now. But I also find that there’s so much opportunity and there’s this infinite universe of tax saving opportunities and strategies and services we can provide our clients. It’s just so exciting. I’ll never find everything I want to find. There’ll always be more opportunities out there, but I always find myself drawn more now to the area of helping people and improving on and expanding upon our services and dedicating my energy towards that. And the ROI on that is just insane as well. So it’s hard to find the time and energy when you find where your path is.
Yonah Weiss:
100%.
Mark Perlberg:
I think we had good conversation on cost segregation. Is there any other unique nuggets or anything else you think worth talking about? I think we covered a lot.
Yonah Weiss:
Yeah, we did. I mean, obviously there’s so much we could cover more, but these are great tips. I think making sure you have a CPA that is looking out for your best interest and giving you these strategies to help you scale is probably the most important thing to get out of this.
Mark Perlberg:
Yeah. And I think, also, a lot of people just assume they need a cost seg study. There are so many other things. A lot of times obviously cost seg is going to be incredible, but you want to be collaborating with your accountant and planning for this. And let’s say you’re trying to save money on an accountant and you order the cost seg before the end of the year. Remember what we were talking about earlier, you really want to take advantage of you being in that low bracket. You may have missed some opportunity to shift income into that year with the $0 taxes, and that time has come and gone. So the sooner you can start collaborating with a CPA, the better off you are to optimize your situation. Before we close out, can you tell everybody about how to find you and learn more about what you do?
Yonah Weiss:
Yeah, definitely. I mean, you can find me in all the social media platforms. Obviously LinkedIn is the biggest one that I’m most active on. You can also go to yonahweiss.com. My website has a lot to do with what we’re working on, on the cost segregation side, on my podcast, on real estate investing, et cetera. You can also go to our company, Madison SPECS. And if you want to get a free estimate for any property, happy to do that.
Mark Perlberg:
Awesome. Yonah, thank you so much for your time today. For everybody listening, this content, even though it’s recorded live, you can still watch a replay on YouTube and on any major podcast player. You find some of this stuff on our site. And obviously you know where to find me if you have any additional question. Again, Yonah, thank you so much, and everybody, have a great night. Yonah, thanks again. I don’t know why so… We had 30 people live for our short-term rental investing webinar. I don’t know. I guess they’re tired of hearing us talk about cost seg, like, “Ah, this guy, he’s talked about cost seg enough. I’m up to my neck in cost seg.”
Yonah Weiss:
Oh, that’s great.
Mark Perlberg:
But I think that we had some good stuff.
Yonah Weiss:
[Inaudible 00:49:35] a lot of value for anyone who listens to the replay.
Mark Perlberg:
Yeah, yeah. They’ll get some good stuff out of the… Maybe that’s what they said, like, “I’ll wait for it to be on Netflix. I’ll wait for it to be on the podcast.” Yeah. Well, that’s cool. Thanks again. How’s your week going? Everything’s going all right?
Yonah Weiss:
Doing great. Doing great. It’s been a busy time and looking forward to tax season ending.
Mark Perlberg:
Same here. But I mean, here’s the thing is, this year I’m actually treating it more like a marathon and I’m not stressing over April 15th or 18th because we’re… I mean, last year I felt like I was going to have a heart attack on October 15th, and I got to pace myself to get through there. So I’m actually putting more energy into recruiting talent right now and just pacing myself psychologically and physically for… For us, with cost segs and all that stuff, it’s an eight-month-long busy season.
Yonah Weiss:
Yeah. That’s true. I mean, we’re busy year round, but it’s just the stress of just getting the reports out when people need them for the tax filing deadlines has just been a little stressful.
Mark Perlberg:
Yeah. Oh, I meant to ask you, New York City, and you live in New York city, what do you think… Would those percentages, like a 25% estimate, be similar in a condo in Manhattan, where the land is so expensive and the structures are a little bit different and you don’t have land improvements on the condo?
Yonah Weiss:
Yeah. You know what? Probably not, to be honest. First of all, the land, if it is a condo where you actually don’t own any land, so that’s an advantage, but at the same time you also won’t have any land improvements, right? So it’s kind of a double edged sword there. But for condos [inaudible 00:51:27]. Sorry, I got a little faulty connection there. But typically condos have a little bit less personal property in them and more going into the value of the property itself, into the building structure. So I’d say it’s probably more in the 15 to 20% reclassification when we’re looking at condos.
Mark Perlberg:
Yeah. I wanted to get into New York City real estate investing demographic because you just have these massive 1530 $100 million buildings. I thought it would really fun, but there’s a barrier to entry in New York City real estate investing. It’s so high. And I find that most of my clients in New York make around what my clients in the Southeast and Midwest earn, and they’re just paying more, so they have less money left over to invest a lot of times. Some of our clients in the Hudson Valley are doing really cool stuff, but in the New York City area, it’s a tough market to break through.
Yonah Weiss:
It is. It is a tough market.
Mark Perlberg:
[inaudible 00:52:40].
Yonah Weiss:
I’ve been looking at so many different ways to invest.
Mark Perlberg:
Yeah. What part of town you live? You live in Brooklyn, right?
Yonah Weiss:
Currently, I’m actually in Israel.
Mark Perlberg:
Oh, cool.
Yonah Weiss:
Yeah. Relocated and working remotely.
Mark Perlberg:
Oh, very cool. I mean, I miss New York City a lot. It’s such an exciting place. But I mean, Israel, I’m sure the weather is a lot nicer in the wintertime, that’s for sure.
Yonah Weiss:
Yeah. That’s for sure.
Mark Perlberg:
Yeah. What part of Israel?
Yonah Weiss:
In Jerusalem. The Holy City.
Mark Perlberg:
Such a beautiful place.
Yonah Weiss:
Very beautiful.
Mark Perlberg:
Yeah. I remember when I was there and just… I’ve never seen a city like that, just how historic it was. I ate at a restaurant. It was literally a hole in the wall, not figuratively. It was a wall with a hole, and the restaurant was in that hole.
Yonah Weiss:
That’s funny.
Mark Perlberg:
Yeah. Awesome.
Yonah Weiss:
That’s great.
Mark Perlberg:
Well, hey, thanks again. It’s probably morning time where you are, right?
Yonah Weiss:
It’s either later or early, depending on how you look at.
Mark Perlberg:
Okay. Well, I’ll let you get back to whatever you’re doing. Appreciate your time, and we’ll be keeping in touch.
Yonah Weiss:
All right. Awesome.
Mark Perlberg:
Have a good one, Yonah.
Yonah Weiss:
Thanks so much. Bye.