Imagine earning as much as $10K in cashflow distributions from your investment in a multifamily property in a given year—yet claiming a taxable LOSS! You CAN mitigate (and in many cases even eliminate) taxable income for years with the MAGIC of bonus depreciation. But you do need to do a cost segregation analysis to claim it.
Terry Judge is the Founder and CEO of CORE Solutions Group, one of the nation’s leading cost recovery consulting firms specializing in engineering-based cost segregation studies. He is committed to educating multifamily investors on how to maximize cashflow and take full advantage of the ever-changing tax code. Terry has 14 years of experience in the cost seg space, yielding more than $1B in net tax savings for CORE clients.
On this episode of Apartment Building Investing, Terry joins me to discuss the benefits of doing a cost segregation analysis, explaining how it accelerates depreciation and mitigates the investor’s taxable income. He describes how changes to the 2017 tax code in made it useful for even small multifamily buildings to leverage a cost seg study and walks us through the advantages of taking bonus depreciation in Year 1 (versus spreading it out over the hold period). Listen in for Terry’s insight around the best exit strategies for avoiding a big tax bill and learn about the additional tax breaks you can earn with energy-saving renovations.
Key Takeaways
How Terry got into cost segregation analysis
- Work in energy space, introduced to idea by accountant
- Noticed gap between government, CPA and investor
The benefits of doing a cost segregation analysis
- Way to accelerate depreciation (from 27½ to 5 years)
- Take advantage of time value of money
- Mitigate taxable income, 20-year carry forward
What a cost segregation analysis looks like
- Breaks property down into component parts
- Apply depreciation schedule one by one
How the 2017 Tax Cuts and Jobs Act changed cost seg
- Smaller properties qualify ($500K)
- Take bonus depreciation in Year 1
The process of working with Terry’s team at CORE
- Send purchase price/date and address
- Kickoff call to go over benefit analysis
How much it costs to get a cost segregation analysis
- Varies by location, requirements
- 15:1 return on investment
How to avoid a big tax bill when you sell a property
- Hold 3+ years to leverage time value of $
- Impact lessened as value of assets reduced
- Buy new property same year to offset gain
Why Terry advises taking bonus depreciation in Year 1
- Can opt to spread out over hold period
- Investors carry forward losses if can’t use
The Energy Efficient Commercial Buildings Deduction
- Incentivizes energy saving renovations
- Includes lighting, HVAC and building envelope
- Up to $180K in additional depreciation
Connect with Terry Judge
The Cost Seg Guy No-Cost Benefit Analysis
Resources
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