Tax Strategies Applicable to Real Estate Investors
On this episode of Next Level American Dream, Abigail and Sean are joined by Joe Viery. Joe's company is focusing on aiding Real Estate Investors to use depreciation for tax benefits. Today, Joe touches on different caveats of taxes within Real Estate, such as eliminating taxes, common misconceptions, and overall strategies.
Key Topics
How can someone who invests in real estate reduce or eliminate their taxes?
Are there common tax strategies that you see being deployed successfully?
What are some of the biggest misconception’s investors have when it comes to tax implications?
Connect with Joe Viery:
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SUMMARY KEYWORDS
cost segregation, depreciation, real estate, years, property, building, IRS, people, accountant, American Dream, rental property, buy, business, multifamily, Joe, depreciation recapture, income, money, tax, pay
SPEAKERS
Joe Viery, Sean Thomson, Abigail Thomson
Abigail Thomson 00:01
Welcome to the Next Level American Dream Podcast brought to you by Thomson Multifamily Group. Your hosts, Abigail and Sean, will discuss how you can take your American Dream to the next level, through real estate investing, business practices, and personal development. Join us as we share our experiences as a father daughter duo who are trying to accomplish our goal of financial freedom. We hope you learn more about how to define and achieve your American Dream. Here's another episode of Next Level American Dream. Welcome to the Next Level American Dream Podcast. We have a wonderful guest for you today, but first, please make sure you are subscribed if you haven't already. We also love hearing your feedback through likes, comments, ratings, and reviews. Today, Sean had a conversation with Joe Viery. Joe's company is focusing on aiding real estate investors to use depreciation for tax benefits. Joe touches on different caveats of taxes within real estate such as eliminating taxes, common misconceptions, and overall strategies. If you found any value from today's episode, please share it with a friend and help us grow. For more information on our sponsor, visit thomsonmultifamilygroup.com to start taking your American Dream to the next level through passive investing.
Sean Thomson 01:23
Hi, Joe, welcome to The Next Level American Dream Podcast. Thanks for being on!
Joe Viery 01:26
All right, thank you!
Sean Thomson 01:28
So, Joe, tell the listeners a little bit about your background and kind of how you got to where you are now.
Joe Viery 01:34
Right, I'll do a high-level background. I started when I got out of college actually being in the travel industry. And I ran a special interest tour company. So again, it was entrepreneurial stuff. And then in 2000, I decided to exit I was a business management major. So, I wanted to go on in more direct business. So, I started working with the California Association of Realtors, as a financial planner to their members. And I met a lot of people, obviously, a lot of realtors. And we talked a lot about you know, all types of strategies and taxes, and capital gains tax blah, blah, blah. But you know, we're going back, you know, 20 some odd years. And then I had a guy that kept wanting me to talk about this service that would help property owners with income taxes. And I kept blowing them off because I thought oh my god, here comes a sales call, you know, the sales pitch, everybody is expecting. And finally, we see I said, Okay, Mike, come on, let's go and have lunch. And we had lunch. And he explained to me about this concept called cost segregation. Well, the year that this happened was 2007. And the California Association of Realtors, when I first started working with probably about 160 170,000 members, and overnight with the crash, their membership went down to well under 100,000. And nobody was worried about doing any financial planning. And I had put into this guy, a couple of clients with him for cost segregation, and I saved him a ton of money on income taxes. They love me and the guy that owned the company, the engineering company, he called me and said, Hey, I understand that, you know, things are tough for you. Because once can work for me. And that's what started me in 2007. And I have not stopped since I've started. My cost segregation, my cost segregation business.
Sean Thomson 03:31
Yeah, that's great. Well, let's talk about 12 sets cost six especially let's talk a little bit about just some other tax strategies and various tax strategies that you see people having success within real estate, you know, our listeners do multifamily, and single family all kinds of real estate investing. Do you mind sort of talking about, you know, how real estate itself can benefit someone, you know, let's say someone has a corporate job, and they own a rental property that helps reduce their tax burden tremendously, even if they just have one or two properties, I would think? And then and then we'll talk more about how to take the various components like it you like you just said earlier, component depreciation, we'll talk about that as well. But if you don't mind just talking about how someone can own just one or two properties and help themselves financially with taxes.
Joe Viery 04:17
Well, the great thing about real estate, which all of your investor listeners should know is that there is a lot of advantages to owning real estate when it comes to income taxes and taxation accordingly. There is just a lot that Congress and the IRS has granted the owner of businesses to do to reduce their taxable income. And obviously, the one that comes to mind is interest income. You can write off your net income, your interest expense, you can write that off, but there's a whole litany of different methods and I could go into detail but when the owner of a real estate they do any renovations or remodeling. When they throw away like you're doing a kitchen, when you're throwing all that stuff in the garbage, that's right off value, the right off value can be used to reduce your taxable income. So, there's just a lot of a lot of benefits to owning real estate. And the one that I was involved in I am involved in is cost segregation, which accelerates one component of the advantage of owning real estate, which is the depreciation wildcard. There's really no other industry investment out there that has something similar to depreciation expense. I'm sure there are a couple of minor but that's why a lot of people love a real estate because the IRS is telling the property owner that basically they recognize that they're using up, they're reducing the value of their building over time. They're using it up. So, they give the taxpayer an expense, where I come in, is I accelerate that expense. So, they get it today versus waiting 27 and a half years.
Sean Thomson 06:03
Right. So, let's talk about how cost segregation works. You because you're like you said you're accelerating that process. So, you know, depreciation, standard depreciation is a 27.5-year schedule, you depreciate the entire asset, what you're talking about is taking the various components of that asset and reducing them on a on a faster schedule. And then cost segregation takes it to another level. Right?
Joe Viery 06:27
Right. So basically, what we do is the easy way in anybody who has children can have their child, calculate straight line depreciation. That's what most owners and CPAs do. Because all you need to do is take whatever you pay for the property. And again, this is key, we're not talking about appreciable value, we don't care what it's worth, we care what you pay for it, the IRS cares about. So, we take what you pay for it, we take when you pay for it, and then we deduct the land, because land is not depreciable. So, let's use an example. If you get $120,000 building and 20,000 is land, I have $100,000 to depreciate the straight-line depreciation for residential real estate is 27 and a half years. for commercial real estate. It's 39 years. But most I think, you know what, we'll be sticking with 27 and a half, which is residential. And by residential, we mean everything except for your primary residence, primary residences are not depreciable. So, I'm talking only investment real estate, whether it be a single-family home, a duplex, a row home a townhome, or an apartment complex or multifamily, it has to produce income. Right, right. Yeah, right. And so basically, what we do as engineers, is we look at the building, and we break out the personal property versus the real property. And it's pretty easy to understand the real property is the main chassis of the building, the walls, the doors, the windows, the roof, the foundation, the slab, all of that is the real property, we find about 30%. And again, very much an average, we find about 30% personal property. And the personal property includes cabinets, flooring, window coverings, countertops, fixtures in the bathroom, and then also land improvements. So basically, that's about 30% of the building. So, to give somebody a very quick snapshot of what I do, if you did not do cost segregation, and you use straight line, if you divide that $100,000, building by 27 and a half years, you would have an expense of 3600 per year for 27 and a half years. If you do cost segregation, I will find about 25 to 30%. So, let's use 25, you know, rather than go high, so I'll give somebody, the owner, a $25,000 deduction against income in year one. Now, that 30% of 100,000. is you know, is 30,000? That that's amount I'm expected by 25 to 30,000. And basically, though, keep in mind that you're still getting the depreciation on the real property, the structure. So, what a lot of people think is that, like, why would they take it now? Because I'm not going to have any more expense in future years? No, you take it now, because you use the money that I'm going to save you. And you invest that money, buy more real estate, instead of writing a check out to the IRS, and you're still going to get depreciation expense, except it's not going to be as much so instead of getting 30 $600, you're going to get 30 $100 per year. Does that make a difference? If I just gave you a $30,000 tax write off, does that make that make a difference to most building owners? No. My Saturday clients who have to write checks out to the government, they'll take every dime I can generate in depreciation expense, so they don't have to pay the taxes today. Now, at the end of the 27 and a half years, both straight line and accelerated are all going to equal out the same. So, this is not a con, we're not calling the government, it's all tiny. Would you rather have a $25,000 expense this year versus getting 3000? For 27 and a half years, and most savvy investors want that big bump, the year they buy the property.
Sean Thomson 10:37
Yeah, I think the logic there from the government side is to say, hey, these people are investing in real estate, they're providing housing, and they're going to get that depreciation no matter what. So, if you give it to them, now they can utilize that money to reinvest in more properties and do more deals in, you know, and have provide more housing, right? Isn't that the kind of logic that the government uses to provide that front loaded cost segregated depreciation? Well, let's look what happened to the tax cuts and jobs act a couple years ago, that's exactly what happened. That's when bonus depreciation came into play. And bonus, depreciation is what the government wanted you to do. They want you to take all of this depreciation, save money on income taxes, so you can go out there and stimulate the economy. It's a win win for everybody.
Joe Viery 11:25
Now, when I first started, though, just a segue. A lot of people that was the first thing out of their mouths, because nobody heard about cost segregation back in 2007. Even though it's been around for many, many, many years, a lot of accountants because they didn't understand it, they just use straight line. But a lot of times what I got was back in the day, when people were saying, Oh, this must be a scam. This and this are not true. This is not real. And I'd have to fight that battle nowadays. You know, if you have not heard about cost segregation, it wouldn't shock me. But the any savvy investor they know about it.
Sean Thomson 12:03
It's not a scam. It's just, it's just, it's just a tax code. It's there's no, there's no scam to it. It's just it's just how they do it. It's just, you know, so let's talk about what is it? So, when you take the deduction on the front end, there is a there is a problem if you sell that property within a certain time period, right. So, there is a recapture of that tax burden within a certain time period of the sale. Right? So, explain that to my listeners,
Joe Viery 12:28
okay, this, this gets into a very complex part of tax code in law. And I will explain a friend that I am not a lawyer, and I'm not an accountant. Yeah, so this person, your accountant would be the one or somebody who is an accountant in real estate and knows this frontwards and backwards. But basically, what happens is there's a component of the IRS tax code, which is called depreciation recapture. And that means that of all the depreciation you've taken over the years, you have to pay back in a depreciation recapture catch 25% of that depreciation, when you sell the property.
Sean Thomson 13:07
So, if you do that, 25,000 in your scenario, if you get that 25,000. And over a certain time period, if you sell the property, you would have to pay 25% of that 25,000 back as a tax recapture. Exactly. Yeah. And your accountant is the one that really should help you with that.
Joe Viery 13:22
Yeah. But that's a good point, though. Because a lot of people again, they said, Well, why would if I have if I have to pay it back? Why? Why do I want to do this? And so, my experience and my, my, you know, what I explained to the taxpayer, is basically, if you can do something, with it with the dollar that I give you, and you know, you're going to hold the property for at least a year and a half, I would look at doing cost segregation. If you can't do anything with the dollar, I'd give you if you're going to spend it on a trip to Europe or a new car, and you're not going to invest that dollar and you plan on flipping the home or selling the home in a year and a half. I would say don't, don't worry about it. Keep your money, don't pay Joe, keep your money. Because if you do the math, you're probably not going to come out ahead. So, it's the time value of money. What can you do with that dollar? So, my accountants have done the math and they say, if somebody can do something with $1, you can get a better rate of return than a savings account. Cost segregation actually saves you in depreciation recapture. So, there's no issue, it's just that you know, you need to hold the real estate for at least a year and a half. Otherwise, even by reducing your depreciation recapture. It's an exercise in futility that I don't really want to have a part in. I would say keep your money. Don't do it.
Sean Thomson 14:47
Yeah, so this this strategy is primarily for someone who's going to purchase property for the purpose of holding it for long term rental. Really, I mean, that's, that's who gets the most benefit out of this right.
Joe Viery 15:00
wouldn't do it unless it was going to be at least a year and a half to two years. And that's on the on the very low end, we'd have to crunch the numbers to see if they made sense because I don't know what their internal rate of return is. And you know, if their return rate of return is not great, then then I might may even tell if they said I'm going to still hold it for two years. I may, even after I crunched the numbers, say now don't do it. It's not worth it.
Sean Thomson 15:23
Yeah, two years is a very short whole time period for any kind of like rental property anyway, so let's talk about let's talk about some of the ways that people can I guess how to do this, I guess, if you let's say you own a few rental properties, you have two or three rent houses or something or you own a big, large multifamily. How do people what is what does this process look like?
Joe Viery 15:45
Okay, good question. So, what happened, and we discussed this previous, in 1997, the Hospital Corporation of America sued the IRS, because they claim that a lot of personal property and their building and personal property did not depreciate against the hospital. So, it's 39 years to not appreciate like a 3939 year building. But what I tell people is I say, okay, you own a rental home, and you look down at your carpet, your flooring, and I'll ask you, do you think that's going to last 27? I'm sorry, is that going to last, you know, 27 and a half years? And everybody say, Are you crazy? I'll be lucky if I get five years. And so the iris understands this, they knew all along, there's many, many hundreds and hundreds of components in the building that they can classify in shorter lives. So basically, it's trying to figure out what are those short live assets? And that's why an accounting firm would be a really difficult time of it. Because how would they know number one would cost allocate to that to bipolar? How would they know what components are legally personal property? I mean, when you're talking about 1000s, of court cases, they don't know. So basically, what anybody who wants to do this needs to understand is you really need to have an engineering company do it. Who understands the regs back in 1997, after the IRS lost that case, the judge was so upset with the IRS, he told the IRS look, you have got to let the taxpayers know about this. And you've got to educate them, and you've got to accept it. So what the IRS did, it took them some years, but they wrote, I think it was 2000, for what's called the audit technique guidelines for cost segregation. Anybody can go online and Google that. And that is the 200 page document that tells the IRS agents, how they should look at cost segregation. So basically, what everybody did in the beginning stages of the industry, is we use the full detail method. And that's why a lot of common things that I hear from people say is like, oh, cost segregation is so expensive. Well, back in the day, it was, I mean, back in the day, you know, we would be charging 3040 $50,000, because we had to do everything, you know, there was no automation. And it was a long process by an engineer, by a PE a professional engineer. And so basically, the IRS published these guidelines, and they gave us the book on how to do it. So we use the number one technique, which is the detailed engineering approach, I still do it quite a bit, that's for multi families. And and what we've done, because this one worked for a single family home, because they because somebody would need to go to that building and inspect it, measure the counters, measure the flooring, and if I fly somebody or somebody has to go to to Tuscaloosa, you know, I can't charge 1000s of dollars and make the math work. So what we developed is we've developed for smaller buildings, a modeling technique, where we don't have to go to the building, we use our experience our book of business, past buildings, and we basically come up with this statistical model. And so we now it's affordable, we use this approach for a building with a basis 500,000 or less, if it's over by $10, we won't do it. It'll have to be a full cost segregation, that detailed study and that means those reports are going to cost you know, I would say minimum three grand on the low end. So so they're not worth it for a small single family home.
Sean Thomson 19:27
But if you own a dozen small single family homes, it may be beneficial, right?
Joe Viery 19:32
Oh, no, no, if you own one, call me I can still help you. Because that fee is is you know, we can reduce the fee down to hundreds of dollars to do the modeling. modeling is not the same as the full detailed study because we're not having eyes on the building. But if you want to only accelerate depreciation powerful.
Sean Thomson 19:54
So even if you had just one one rental property, this is something that could benefit you dramatically in your depreciation scheduling?
Joe Viery 20:02
Right, right. Yeah. Here's one thing, though that be very important is that, you know, again, I give you meaning the client, or their accountant, I give you the information you need. I stand by if the IRS has any questions, I defend my work, no cost, no extra cost. And so basically, what we use, the captain has to apply the benefits. There's another issue with real estate, and that's passive versus active. I give the client, whatever type of investor you are. And you should probably know, if you're passive versus active, your accountant should have probably gone over that those definition. But basically, if you're a passive investor, I give you passive losses. If you're an active investor, I give you active losses. Why is that important? Because you may not need passive losses. your accountant may say, Hey, Joe gives you you know, I a $25,000 loss. Now the losses carry forward for 15 years until you use them up. But you know, if somebody doesn't need losses, they've got a lot going on their real estate, cash flowing nicely, but they're not paying income tax. You don't need me.
Sean Thomson 21:16
You don't need additional losses. And so the I think the difference you're talking about is if you're a real estate professional, right, so active, active investors are going to be real estate professionals that are designated real estate professionals. Right. And that's that 750 hour, whatever. I don't know the criteria. Exactly.
21:35
Well, neither does the IRS.
Sean Thomson 21:38
Passive is someone who doesn't sort of meet that that that minimum threshold of a real estate professional, I don't think so.
Joe Viery 21:46
Well, what happened was back in the 1980s, you had, I'm picking on doctors, apologize. But the the, the story I heard was the doctors were going out, and somebody was pitching them on buying dilapidated, non usable structures, buildings, and they were using the depreciation expense to offset their income as positions, right? Congress and the IRS. And none, none, none, none, wait a minute, you can't do that. If your primary income is as a doctor, you can't use your rental income to wipe out your your, your, your your primary income. So that's where they came up with the passive active rules. And so it makes sense. But there are workarounds. I'm willing to share them with you. But sometimes they're no working work around for five bucks. But there's no workaround that works. And I'll be the first to tell my clients, or if somebody's interested, if it doesn't work, I'll just say, don't bother doing it.
Sean Thomson 22:45
Yeah, we I know this is cost segregation is sort of like a standard operating procedure. When you buy a multifamily property that's, you know, sizable multifamily property. I don't think a lot of people that are buying single family rental properties, one wanting one and two at a time, or maybe you don't have three or four rental properties are really looking at this, unless your accountant, you know, my accountant happens to be a real estate guy. So he does all this, you know, from from my single family business, he does all this, you know, every year for me. So unless your account is really a real estate person, I don't know that they know that this, you know, is really a big benefit to them, for their real estate clients.
Joe Viery 23:24
I'll share a little secret with you even some of the really very, you know, good real estate accountants still don't know that there's this modeling technique that we perfected. We've been doing this for five years, this is not new, it's just that we haven't really been actively out there knocking on doors. I mean, my clientele, of course, know about it. But you know, there's very few accountants that really grasp the modeling is available. It's their fault, just that, you know, they don't know that joke exists. And there's very, very few companies that do do what I do.
Sean Thomson 23:59
So, if someone was curious about so let's say you do have a doctor who owns four or five rental properties, and his goal is to offset his his income from his day job of being a doctor, they can contact you and say, Hey, you know, is there is there a way for me to increase my my or decrease my tax burden? You know, on both sides of this with my a, my income from my, my properties and my, my other income? And you can kind of help them through that if it's beneficial or not to them? Right? Yes. Okay. And as Likewise, if someone's buying a big, you know, 100 unit multifamily project, you know, that that's something that you guys would definitely you would do the engineering reports and all that stuff. That's that's kind of your thing. Right?
Joe Viery 24:39
Yeah. I mean, the we're kind of a unique platform it where I do single family homes. And if somebody wants to know what's the, you know, oh, by the way, I didn't explain this, that when that court case happened, one of the things that judge said is that not only the IRS Do you have to let everybody Know how to do this and write this 200 page report on how to do it. But you also have to let them go back and take the depreciation that he should have taken. Because you didn't tell anybody that there was the acceleration available. So I can do look back studies. Now, how far back can I go? Because what I look at is I look at, like, how much depreciation Have you taken? How much depreciation you're going to get, if I accelerate it? And how much am I going to charge. And so if you put those all in a blender on low, and it comes out that I'm not going to save you at least 10 times my fee. So my fee is $500, I want you to save at least five grand, if you're gonna save about five grand, I'll tell you, I don't think you should do it. Now, if you want to beat the IRS for $1,000 Be my guest. I will, I will give you that report. But bottom line is, it's up to you to decide. But you can go back 15 to 20 years, and I'll run that analysis and let you know if it you know where if it's worth it or not. So if you go back to 2005, I can tell you, it's probably pretty much worth it to do accelerated depreciation. And again, I have to do the calculations. And I give those to the accountant. So they don't have to do the calculations. And then they fill out a form, which is a change of accounting method form. And the funny thing about this form, which is a common form, is that this use cost segregation is the only use that that's guaranteed accepted by the IRS. So once they see that form is submitted for cost segregation, they can argue it, and then I do the calculations. So the accountant can show how much depreciation I'm giving them how much they've taken. And what's the net impact on their 2020 tax return?
Sean Thomson 26:47
Yeah, wow. So someone's had property for a long time, and they didn't realize that they could be doing this, this, this can be tremendously beneficial to them, for sure. Let's talk about some of the things that that people kind of misunderstand about what this all means is they like you were saying earlier, when we were just talking a lot of people think this is some sort of scam or something. But, you know, what are some of the misconceptions about how cost segregation works? And what the benefits are? Do you think?
Joe Viery 27:13
Well, it comes down to I think the major costs. The major objection in a lot of times this comes from the the accountants is that they don't understand why you'd pay to have the study done. If joselyn gonna save you this amount of money, and then you're just gonna have to pay it back and depreciation recapture. That's still a common one. However, I think this is up to the client and not up to the accountant accountant is not the one writing the checks for the property or the accountant didn't pay for the property. And so they don't understand the power of keeping that money, you're going to write to the IRS and keeping it in your bank account, so that you can invest it. So I think the depreciation recapture is still a misconception out there, the time value of money is a misconception. If I give you $1 today, I would hope that you can do something with the dollar. And if you can't, then you know, you're probably better off in in using another investment. Because you know, that's what real estate is all about is creating, you know, equity in your home. And then you know, trading up in exchange, or doing cost segregation, saving money on income tax and buying more property. But that's really the key to, to owning real estate is to is to buy property and trade up.
Sean Thomson 28:32
Yeah, real estate, I think I think Real Estate's one of the I don't know what you call it, but it's like the the premier or the like the leading method for for wealth, you know, just just protecting your wealth, you know, because you can, you have all those additional benefits beyond, you know, if you buy a business, you get, you know, earnings and stuff from a business, but you don't get this same sort of tax sheltering capacity that you have with other stuff. So I think real estate for sure, if you're trying to preserve capital, or you know, store your wealth or any of those sorts of things, you can generate income, you can save taxes, you can do all those things with real estate. So real estate has just in general, as a, I guess a wealth building tool is pretty is pretty high up there on the scale of which one's a bit better than the other, you know.
Joe Viery 29:17
I've got speaking engagements and all types of different different audiences. And even heavy duty investors, billionaires usually will always have a minimum of 30% in real estate. Some of them a lot more some that's how they made all of their monies through real estate. But, you know, diversification I think, is key. And if you're going to diversify by real estate, because of all the factors you just mentioned, it's really powerful and unique. You can't get a lot of these advantages in other types of investments.
Sean Thomson 29:53
Yeah, and I think like you said earlier, cost segregation is just that next, that next level of what you can Do with real estate for sure. And especially in their taxes. So let's talk about how can people kind of reach out to you and get in touch with you and get that process started for their for their real estate.
Joe Viery 30:11
Okay, the name of the company is US Tax Advisors Group, Incorporated. So the website is: www.ustagsinc.com. They can call me directly on my cell phone (619) 548-1990. Or we have a toll free number. But that's kind of a moot point now, having toll free number since nobody pays for phone bills.
Sean Thomson 30:38
Yeah, I think everything Everything is toll free nowadays. But I haven't seen a landline in forever.
Joe Viery 30:45
Yeah, I don't have one.
Sean Thomson 30:48
So, you've had your own business for a long time. And I you know, this is I talked to you about this earlier, but my programs are my show is kind of about just the American Dream and taking it to the next level. And so you've been you've been in business for yourself for quite a while and doing these, you know, helping people save on their taxes and stuff. So tell us tell us a little bit about what the American Dream for you is, and maybe some things that you've kind of found in your life that are helping you take it to the next level?
Joe Viery 31:16
Well, the American Dream, to me is the opportunity that we have to do it, I'd be the prototype, to to take somebody out of college, who just decided to create a business and built a successful travel business, and then segue and said, I want to, you know, be a do another business, another service, which was you know, financial planning, and then you know, when it's cost segregation, and that's the American Dream, because, again, I travel all over the world many times, and you don't see what we have in the United States. You don't see this in other continents, in other countries around the world, just the way the entrepreneurial ship is embraced in the in the help people like you out there that do education and podcasts. I mean, you know, anybody can create their dream. And real estate, I hate to say this, if any young whippersnapper came to me, I would say you must invest in real estate or be involved in real estate because that that industry will never go away. People will always need real estate in America.
Sean Thomson 32:28
Yeah, shelter is one of the requirements of life, really. So that's always good. Well, Joe, thanks. Appreciate it. I really do appreciate you coming on the show, sharing this information with everybody. And hopefully, you know, they learned something from it, and they can reach out to you if they need to get more information.
Joe Viery 32:44
I want to give you one last thing, though, yes. Now look, I don't have my crystal ball out. It's somewhere else. Anyway, I will give you Joe's opinion. And again, you just take it from my experience in all that even though I looked like I'm 25, I'm not. So I have some experience. But here's my crystal ball is I think for the next two years that I would expect it I'm speaking only tax laws, no changes.
Sean Thomson 33:17
With the new administration coming in that is that is a question people might have is what what would you expect? So for the next two years, you think we're gonna just hold where we are?
Joe Viery 33:26
I think we're, we're, you know, whatever anybody wants to do, basically, they're stuck. There's really no moving out of that, out of that lane, you're stuck in that lane. And I think that this, the period is going to be for two years. What happens after two years, you know, it depends on a lot of factors, but nothing in my world will change. The only thing I'll just throw this out, there is one, I mentioned a little bit about bonus depreciation, the 100% bonus goes away after tax year 2022. So it's not no urgency. But after 2022, we'll be back to the good old days, which is still powerful. But with bonus depreciation, getting all of that money up front. In the current tax year you buy a property, that's pretty powerful. So that's the only thing that will change in the next couple of years. And then after a couple of years, you know, who knows, but I don't think depreciation is ever a card the Congress will take off off the table because it's too powerful. Too many people investors in real estate if they try to do that, oh my gosh.
Sean Thomson 34:34
Yeah. Well, it's been around for quite a long time. It's survived several sort of, I guess tests of the tax law anyway with Congress and stuff. Do you mind I want to just roll back to so, you said that in 2022, the bonus depreciation is going to go away - what is it going to look like after that? Do you mind sharing that for with everybody so we have today we have that front loaded like we've been talking about that front loading depreciation can take in year one And then and then roll out if as needed. What is the new after 2022? What is that going to look like?
Joe Viery 35:07
Okay. And again, anything can change in in tax law, right? It's up to them to change about the way the provision was written is that if you bought a property after September 28 of 2017, you acquired the property, then basically that qualified for bonus, the way the bonus rules are written is that any life of a component of the building that's 20 years or less, you can take all of that depreciation in the year you bought the building. So as you know, I break out the five to seven and the 15 year. Is that less than 20? Yes. So, now you know how much of that building you can take as a deduction. So when I calculate the 15, the seven to five year components, you're writing that off in year one, or in future years, if you don't need all of it, you it'll carry forward as a net net loss. Basically, prior to that, what happens with cost segregation in this gets a little technical, I'm not going to dwell on it. But when we're combining five, seven and 15 year terms, if you put that on the blender, it doesn't come out all in year, one, normal year cost segregation before bonus, you got most of it in year one, then more in year 2, 3. 4, and 5, until the complete benefits of doing cost segregation have been fully expire, and then you'll go negative on depreciation for the next, you know, 21 years or whatever the math is 2022 years. And so with bonuses, pretty cool, because you don't have to worry about over five years, boom, you got it all in the year that you bought the building, what happens in 23, is that 100% goes down to 75%. And then down to 24. It goes to 50% and 25. It goes to 25% in 26. It's now back to the good old days. Now, well, Congress changes in 22 and say, you know, we'll just extend bonus, maybe? Yeah, maybe.
Sean Thomson 37:13
But there's still so it's gonna trickle down through 2025. And even after 2025, you're still gonna go back to the system that we were at before 2017, which is the five, like you said, the 515 year depreciation schedules, and that those you can take those early in the 27 and a half year depreciation the first five years anyway, right?
Joe Viery 37:36
There's about five years, you got to do the math. And you know, it varies between five and seven years, he getting the benefit every year, every year, every year until finally it flips the other way. And you've used all of the personal property of the acceleration, and then you're back to the to the real property that the 27 and a half year property. But is it the end of the world? No, it's just it's really nice to have bonus because man, you know, you get all of that by being you buy $120,000 home, and Joe's gonna give you about a $3,000 tax write off in your one. Wow.
Sean Thomson 38:13
Barring any changes that they make, that are supposed to take effect immediately or anything like that, it's still gonna be quite a long time before it really goes away. And then it's going to be even after that it's still, you know, the tax benefits are still going to be there. It's just not all front loaded into one year. So yeah, that's good. Well, hopefully, hopefully, they'll I don't know, either continue that or not not make it worse.
Joe Viery 38:35
I would I have a feeling they'll probably extend bonus. Yeah, you know, unless the economy is just ripping and in tearing up. But you know, we're in a big pit. Now. I think it's gonna take longer than a couple years. So I can't I, you know, I would not be surprised Congress, you know, just extended it.
Sean Thomson 38:58
Well, and housing is a big is a major issue right now. You know, they've just extended the moratorium on foreclosures, they're, you know, they're having to work with people on forbearance and all these issues. So, you know, I don't think they're going to try and make it worse, I would think, by increasing taxes. So we'll see what happens.
Joe Viery 39:15
That's why I don't think anything's going to happen. Because there's no way any administration will want to try and do anything that goes backwards. Right. That's not a battle they want to fight. So to take away losses from from real estate investors, that would be real big gamble. In fact, I just don't even think don't go down that road.
Sean Thomson 39:38
Yeah, there's too much too much craziness going on right now. We think. That's awesome. Yeah. Thanks, Joe. I'm glad we added that little section there. Yeah, I appreciate that part, for sure. Well, yeah, thanks for coming on the show. I appreciate you taking the time to talk to everybody. This is something that I think is important, you know, for people and I think it's kind of one of those areas that not a lot of people understand and You know, there's people out there like you, helping kind of make this happen for real estate investors. So, I appreciate you coming on and sharing that.
Joe Viery 40:07
You're welcome. Thank you for giving me the opportunity to spread the word!
Sean Thomson 40:11
Yeah. Thanks, Joe!
Abigail Thomson 40:12
Thanks for joining us for another episode of Next Level American Dream. If you would like to learn more about what we talked about today, want to contact the team directly, or are interested in passively investing and being a part of our deal room, head over to our website at www.thomsonmultifamilygroup.com. Before you go, please leave a review! Your comments help us create more episodes for you to enjoy.