This week I have Yonah Weiss on the show, a cost segregation specialist, and we dive deep into this amazing way of minimizing or even eliminating your income tax. Don’t miss it! 👉👉 Get The Passive Investing Playbook - https://theinvestormindset.com/passive So what is cost segregation? Well, it's an advanced form of depreciation and depreciation is a tax deduction that any property owner gets when they buy a property. This means that you can take the cost of the property (aside from your personal residence) and take it as an income tax writeoff. As this typically happens over a long period of time, we can reallocate that cost to different components that depreciate at faster rates. This means taking larger tax reductions in earlier years of ownership. So this is something fundamental that you really want to be doing as an investor to save a lot on your tax returns. Yonah is a powerhouse with property owners' tax savings. As Business Director at Madison SPECS, a national Cost Segregation leader, he has assisted clients in saving tens of millions of dollars on taxes through cost segregation. He has a background in teaching and a passion for real estate and helping others. He’s a real estate investor and host of the new podcast Weiss Advice. Hit subscribe to join the community and build your investing knowledge today!
This week I have Yonah Weiss on the show, a cost segregation specialist, and we dive deep into this amazing way of minimizing or even eliminating your income tax. Don’t miss it!
👉👉 Get The Passive Investing Playbook - https://theinvestormindset.com/passive
So what is cost segregation? Well, it's an advanced form of depreciation and depreciation is a tax deduction that any property owner gets when they buy a property. This means that you can take the cost of the property (aside from your personal residence) and take it as an income tax writeoff. As this typically happens over a long period of time, we can reallocate that cost to different components that depreciate at faster rates. This means taking larger tax reductions in earlier years of ownership. So this is something fundamental that you really want to be doing as an investor to save a lot on your tax returns.
Yonah is a powerhouse with property owners' tax savings. As Business Director at Madison SPECS, a national Cost Segregation leader, he has assisted clients in saving tens of millions of dollars on taxes through cost segregation. He has a background in teaching and a passion for real estate and helping others. He’s a real estate investor and host of the new podcast Weiss Advice.
Hit subscribe to join the community and build your investing knowledge today!
KEY TAKEAWAYS
1. What is cost segregation: It's an advanced form of depreciation. Depreciation is a tax deduction that any property owner gets when they buy a property. This means that you can take the cost of the property (aside from your personal residence) and take it as an income tax writeoff. As this typically happens over a long period of time, we can reallocate that cost to different components that depreciate at faster rates. This means taking larger tax reductions in earlier years of ownership.
2. Real estate is an amazing way of minimizing or even eliminating income tax.
3. On average from 25% - 50% of the purchase price can be reallocated in cost segregation depending on what type of asset class it is.
4. Depreciation starts when you buy a property and it's based on purchase price.
5. On a major renovation project, only the renovation cost can depreciate at a faster rate and not the purchase price. The depreciation also only starts when the property is rent ready.
6. It typically takes a few weeks to turn around the cost segregation study.
7. An engineer is needed to carry out the study and it's for this reason that someone like an account can't do the job for you.
8. For people that aren't real estate professionals, you can still benefit from depreciation but only on the passive income you earn and not on your regular income. The main beneficiaries of this technique are going to be real estate professionals as they can use depreciation across all their income.
9. As a passive investor with multiple investments, the depreciation from a property can spill over and be used to offset income from other investments as well.
10. If the property is refinanced then the money you receive as an investor will be tax free.
11. Bonus depreciation means that once you've allocated assets to faster depreciation schedules, you can take 100% of the depreciation tax deduction in the first year instead of spreading it out.
12. A depreciation recapture tax means that you're taxed on the amount of depreciation that was taken over the investment period. It doesn't mean that you have to pay back everything you've saved in the process.
BOOKS
The Passive Investing Playbook - https://theinvestormindset.com/passive
LINKS
https://www.yonahweiss.com/
https://www.linkedin.com/in/cost-segregation-yonah-weiss/
Learn more about investing with Steven at https://theinvestormindset.com/invest
Join the MultiFamilyMBA and get exclusive free training: https://theinvestormindset.com/mfmba
Steven: [00:00:00] Welcome back to the investor mindset podcast. I'm your host, Steven Pesavento and today, I have a phenomenal guest - Yonah Weiss in the studio. How you doing today Yonah?
Yonah: [00:0:11] It's a pleasure to join you in the studio Steven. It's great to be here. Thanks so much for having me.
Steven: [00:0:17] It's great to be here with you as well. And some of you guys might know Yonah is a powerhouse with property owners, tax savings and as the business director of Madison spec, a national cost segregation leader. He's assisted clients in saving 10s of millions of dollars in taxes through cost segregation. He has a background in teaching and is passionate about real estate and helping others. He's a real estate investor himself and he's the host of a new podcast, which I'm very excited about - Weis advice. So you ready to dive into some things?
Yonah: [00:00:46] I'm ready? Yeah, this is great. One of my favorite pastimes.
Steven: [00:00:54] This is the investor mindset podcasts and I'm Steven pesavento. For as long as I can remember, I've been obsessed with understanding how we can think better, how we can be better, and how we can do better. And each episode, we explore lessons on motivation and mindset for the most successful real estate investors and entrepreneurs in the nation. Investors, have you grabbed your copy of the passive investor playbook yet? If you haven't, I recommend you go pick up the Ultimate Guide to passive real estate investing at the investor mindset.com/passive. You can grab that in the show notes right down below, as we've interviewed tons of the top experts and brought together all of the knowledge that we have on passive investing so that you can lay a foundation for yourself to make sure you're making the right decisions in your investing career. You can grab that guide at the investor mindset.com/passive. I hope you'll take advantage of it and let's get back to it. So if we start off by looking back at earlier in your life, what events or influences from your childhood shaped who you are today?
Yonah: [00:02:07] I think, you know, when looking back like that, for me it's being a teacher, and that's really where my passion has been for the longest time. And in fact, what I did before I really got into real estate, and I think one of the most incredible things that shaped me was to have -- I wasn't being in school, right. I wasn't a great student, but I loved to learn. So it's kind of an interesting dichotomy there. And when it comes to real estate, we're constantly learning. We have this podcast over here we have these educational opportunities we're getting on. For me, it was exactly that. It was having a teacher that really looked to want to help me grow and provide me certain insights. I remember the greatest teacher I ever had was someone and he told me something like this. And there's an old Jewish saying that says, in a place where there aren't people be that person. And it's kind of taught me that lesson that you kind of have to stand up and take the hold of opportunity when it arrives if you see no one else doing something.
Steven: [00:03:12] Yeah, that's beautiful. I think that transitions really well into something that you're phenomenal at obviously taking that teaching and teaching people about cost segregation. So we're going to get into some depths of cost segregation, some advanced topics here. But what is a simple definition of what cost segregation is and how does it work?
Yonah: [00:03:30] A simple definition is that it's an advanced form of depreciation. And depreciation is a tax deduction that any property owner gets when you buy a property, okay? Asides from your personal residence, anytime investment property, you now get to take the entire value of that property and take it as an income tax write off. That's called depreciation. But it's done over a long period of time, over 27 and a half year period or a 39 year period for commercial buildings. Cost segregation is the process of reallocating that cost, segregating that cost, if you will, into different components that depreciate at faster rates. So you can take larger tax deductions in the earlier years of ownership. So it's a tax savings tool. It's a cash flow mechanism that gets tax deductions at an earlier rate.
Steven: [00:04:21] I love the idea of it being a cash flow mechanism, because at the heart of it, that's what it really does. It creates the opportunity to create more cash flow and to save cash flow in the short run by essentially delaying or deferring indefinitely those taxes.
Yonah: [00:04:40] Exactly. I think that's what how people have to look at it. When you hear about real estate investing, and one of the things about real estate investing that makes it so great is the tax benefits, right? The tax benefits of depreciation and cost segregation which essentially it's the majority. What does that do? How does that translate? Why is that so important? Because, you know, taxes are the biggest expense that anyone can possibly have, any business or individual has. And so if you have a way to eliminate paying income tax or minimize it, that allows you to make a lot of money and reinvest that and grow that and have that cash flow to continue growing your business.
Steven: [00:05:22] Yeah, I love that. And so for the operators out there, when they're going about making that purchase, and they're looking at doing cost segregation, how can they estimate the level of depreciation they might expect?
Yonah: [00:05:33] It's different for every property. But we always run a free analysis for anyone who's interested in taking a look at that. And it gives you a kind of bird's eye view to see what would the potential tax savings be, if I did a cost segregation study. And we'll have our engineers since we've done 1000s of these, we'll have them analyze, some very simple details of the property to see what that would be. Typically speaking for multifamily properties and I see that's a very popular asset class. A lot of people, probably a lot of your listeners are interested in that or actively investing in that. Typically, we see between, I'd say average about 25% of the purchase price being reallocated to those faster lives. So we'll talk a little bit about how that breaks down, what those faster lives are but yeah,
Steven: [00:06:20] Yeah. So for multifamily property about 25%, it's going to depend, of course, on the land value, you know, the age of the property, all these different things. So just some quick rules of thumb for other asset classes, if we're looking at storage, retail, talk to me about some of those.
Yonah: [00:06:36] Absolutely. Retail usually is also somewhere between, you know, around 30%, to 35%, especially when there's large land improvements, typically, like a shopping mall, will have huge parking lots, all of those land improvements we'll talk about depreciate at a faster rate. Self storage as well. It's going to depend on some very important factors, specifically, if there is climate control. Climate control is something that depreciates at a five year schedule, and that usually has a large value to it. So again, it's gonna depend a lot on what's going on in every individual property. But on average, you're looking at about 20% to 25% on storage. Mobile home parks happens to be a huge one. Because, again, especially when there are no 10 own homes, there's land improvements, and land improvements means the concrete slabs under each home, the the pavements, the roads, the landscaping, fencing, all that stuff has value. And essentially, that's the majority of the value. You're looking at, you know, upwards of 50% reallocation in mobile home parks.
Steven: [00:07:39] Yeah. That's great to have those rules of thumb down for people to just understand generally, what they're looking at when they're going to go through this process. And that's 25%, or 50%, or 35% of the total purchase price of the property. So let's focus deeply on multifamily because it's the most popular in my circle, and most of the listeners are focused in that asset class so we'll focus there, but we'll kind of refer back to some of the other options as well if it makes sense. But talk to me a little bit about how it's different. How the the depreciation benefits are different. If it's a property that's stabilized, meaning there's not really renovations or things that are going to be done to the property. It's something that has light value, add a little bit of updates, or renovations are going to happen quickly. Or if it's something that's a heavy redevelopment, where you're going to essentially be re-building or redesigning every unit roofs, plumbing, concrete, all that kind of stuff. So how does that change depending on from stabilize all the way to redevelopment?
Yonah: [00:08:38] Absolutely. So first off, when you buy the property, that's when your depreciation starts, and it's based on the purchase price. Not not based on how much money you spent, but how much money was actually put into to buy that. So you get the advantage of the leverage of the financing. That's first and foremost. That doesn't change if you do an appraisal if you refinance, anything like that. Where that does change is when you're going to be adding money into the property, when you're going to be doing capital improvements. So I'm glad you asked this to break it down. The first thing we do is we do cost variation on the acquisition cost. Which means we segregate, we separate, we split up that purchase price into different categories. You have land, which doesn't depreciate, you have the building and the main structural components of the property like the roof, walls, floor, windows, doors, main utility features, all that stuff depreciates on a 27 and a half year schedule or 39 year schedule for commercial. What we're doing is we're separating out other assets, five year property, which is personal property, appliances, furniture, fixtures, all that kind of good stuff. And the land improvements, which is 15 year property, as I mentioned before. So on acquisition where there's no improvements, you know, pretty much straightforward turnkey investment we're looking at getting the tax deductions from that acquisition cost. Now when you add money into that property as you go along, you, and let's just take it the steps just like you laid out, if it's a simple light value add, there may be certain things that can depreciate faster, whenever you add money into that property, it's going to be depreciated. That means you can take the tax deductions of how much money was spent, regardless if you spent it or the bank spent that money, it doesn't matter, that's put into your property, it's added to depreciation. When there's a small amount, let's say you replace the carpeting in all the units, that carpeting depreciates on a five year schedule. Which means you're going to go ahead and write off the value of what you replaced. It has very little value to it, that's a tax write off. Then whatever you put in, let's say you spent $50,000 on replacing the carpeting, you can now depreciate that, and that's eligible for, you know, the five year treatment of depreciation and bonus depreciation, as I'm sure we'll get to, as well as a first year tax deduction. That can go along, it may not be in the first year, maybe the second year of ownership. So you can actually go back, get a supplemental cost segregation study done and update to whatever was improved on whatever additions were made. When you're doing a major renovation, where we're talking about literally a gut renovation. This is where it gets a little bit tricky. If you're doing a gut renovation, and especially if there are no tenants, I know a lot of times you buy a multi family property, you're turning the units as they go, as tenants move out, you may be turning those units. But let's take a far extreme example, where you actually buy a property, maybe it's a small multifamily, maybe it's a duplex or a four Plex, and you literally just want to gut the whole thing and no one's in there. You don't have any tenants at that time. So the problem with this is that rental properties get this depreciation deduction. However, it's only for a rental property that is functioning as a rental property is placed in service and is in service. If it's vacant, essentially what you've done is you've bought a building, but you're not renting it out, you're renovating it. It only gets the rental property treatment, and the depreciation starts only when it's rent ready. That also makes a big difference in terms of the cost segregation, because if you buy it, and then essentially just rip out everything, then all you're basically buying, or what's going to be looked at for depreciation is just the land and the building the structure, because all the other stuff is getting ripped out. And you're going to replace that. So when we look at cost segregation on a major renovation like that, as I just described, we're only looking at the actual renovation costs to what can be depreciated at a faster rate and not the actual purchase price, because that's again, just going to be allocated to land and building.
Steven: [00:12:47] Yep, that makes so much sense. And so when an operator is looking to start planning for this, they should really be talking to somebody like you right from the very beginning so that you guys can understand and estimate what things are going to look like. And then as soon as the property closes, you guys can can begin that work.
Yonah: [00:13:05] Absolutely, yeah. And that's part of the reason why we provide that free analysis upfront, because we'll give you a gauge and an idea of you know, what the potential tax savings are going to be as well as if you're doing that major renovation, we can look at the construction budget, and see, based on what you're planning on spending the money on, you know, how much of that is going to be separated to what category.
Steven: [00:13:27] And so back to that redevelopment piece, if part of the building is been vacated after purchase, the property was purchased in service, but then part of the property is taken out of service. How is that handled?
Yonah: [00:13:39] So as long as it's one property, and I gave the extreme example, and I'm glad you followed up with that. But if part of the property still in service, it's still considered a rental property, it's not split up from that regard in terms of depreciation, so you still get the depreciation deduction if you're still collecting rent on it. And we're going to look at, you know, the property as a whole. And then we'll look at the redevelopment in phases. So you're going to get the acquisition cost, you're going to get the depreciation, the cost segragation on that acquisition, and, maybe the next year, you come back and look at the depreciation cost segregation on the renovation component.
Steven: [00:14:16] And so how quickly does this process start from start to finish; closing the property, and we're like, let's get to work. How quickly are we receiving that information back so that, you know, we're ready for tax time?
Yonah: [00:14:29] Yeah. It usually takes us a few weeks to turn around the whole study from beginning to end. It requires an engineer component to it, which, you know, we didn't really talk about this, but it involves the engineer coming to the property and most of the time, we're actually doing it virtually at this stage. But our engineers are still visiting the property whether with their personal bodies or with virtually the help of someone else. It takes about a few weeks to take that report all those findings, create that report, turn it around, it's not something that needs to get done before the end of the year per se, but it needs to be done before you file for your taxes for that year.
Steven: [00:15:04] Yeah, that makes so much sense. So what goes into the depth of the process that requires an engineer to be involved and why can't just an accountant do something like this?
Yonah: [00:15:17] It's part of the reason why a lot of accountants don't even know about this let alone don't do it. Because the IRS in the cost segregation audit techniques guide delineates there all the principles that need to go into a quality cost segregation study. And one of those fundamental principles is that it needs to be conducted by someone with engineering training. So because they're coming into the property, you asked what that consists of engineer visits, the property, takes pictures, measurements of everything inside and outside, and is able to then basically reverse engineer what every tiny detail from fixtures to screws and nails everything. What everything falls into which category of depreciation schedule, and then now take those findings create a very detailed calculation of the useful life, you know, the potential useful life, the tax useful life, make these calculations, how much value is in each of those things and then how much can we now depreciate? How much can we take as tax deduction? So it's something that accountants can't actually do. There are large accounting firms that employ engineers on staff, and do it in house. But the majority of accountants I've spoken with actually aren't even very familiar with it, because it's such a tiny niche, kind of part of the tax code.
Steven: [00:16:36] So you really need that expertise to be able to understand what are the different items that are going into that property and how you can actually separate that out? And so tell us, why has the tax code included something like this, so that you can break down these individual items, and essentially, take depreciation on a much faster basis? Then we'll talk about bonus depreciation a second?
Yonah: [00:16:56] Sure. I think it's based on the concept, you know, and we all understand that things go down in value as time goes on. And things do have a useful life. And it actually is true, in a sense that your carpet lasts a much shorter time than the walls and the roof of your building. Okay, so the principles are true. And so it makes sense that -- maybe we'll take a step back, the whole concept of depreciation doesn't really make sense. And the fact that you can now take a tax deduction of the thing, but based in the world that depreciation as a tax deduction makes sense and the government decided to incentivize people for buying property within that framework, it makes sense that things depreciate, or things go down in value as time goes on at different rates. And so that the IRS would give these different treatments, the different objects and components and assets within your building does make sense, it still doesn't really make sense, why they're doing in the first place, and I'll even take it more -- It's not intrinsic to the actual cost and the actual useful life of the of the item. Because that depreciation, if you remember what I said in the beginning starts the day you purchase the property, meaning that 27 year schedule, or 39 year schedule starts the day you buy it in 2020, even if the building was built in 1925. And you know, the carpeting has been in there for 17 years etc, you get to now take the taxes off as depreciation as if you're starting now over a 27 year period.
Steven: [00:18:31] Yeah, it sounds like something clearly cooked up in a law makers office who is not a real estate agent or investor or experienced professional in this space. But at the core, the tax code is really just a map of what the government wants its citizens to do. And it's created this deduction, this depreciation as an ability to incentivize people to go take that action, or go and do whatever they are specifically interested in people doing. And in this case, it happens to be, you know, buying commercial real estate and improving commercial real estate. Because if things do degrade over time, then clearly it's going to make sense that we're going to want to incentivize people to, you know, bring things up to a new level of quality, as well as giving somebody the benefit for buying something that is now worth much more than it was 20 or 30 years ago when that last investor bought it.
Yonah: [00:19:23] 100%. And just like you said, it's clear that there are incentives for this. How much and how little that makes sense according to them, it's hard to know. I mean, obviously, residents are having a roof over your head and having a place to live is one of the most essential necessities that anyone can have. So it does make sense that the government is incentivizing people to be involved in it.
Steven: [00:19:46] And so what are some of the reasons that somebody would not want to go about doing a cost segregation on a property they own?
Yonah: [00:19:55] One of the main things and I'm glad you asked this question is because it's not necessarily beneficial for everyone. People who are considered real estate professionals by the IRS's definition, which means you spend more than 50% of your time involved in, you know, rental property in the material participation of real estate, whether that's being a broker or manager or construction, whatever that is, people who are real estate professionals actually get a much, you know, much more greater tax treatment that they can use these deductions to offset their ordinary income as well. Whereas regular people with regular folk who are not real estate professionals are limited to the amount of deductions they can take beyond their rental property income. So who is this going to be for? Where would it not make sense is someone who doesn't really need those deductions. If you don't need extra tax deductions, because either a, you don't need them, because you already not paying in taxes anyways, or you can't use them, because you're not a real estate professional and your regular depreciation, for whatever reason, is offsetting your rental property income, then that's first and foremost who it's not going to benefit. So it probably doesn't make sense. So from that regard, it has less to do with the property than it does the the owner of the property or owners.
Steven: [00:21:15] Yeah, absolutely. That makes sense. And so for the passive investors out there who are not real estate professionals, you can still get benefit from depreciation, but it's only on the passive income that you earn, instead of the ordinary income for somebody who's a real estate professional, an agent, a broker, somebody who works in that space, they're going to end up being able to write off ordinary income as well, and not tax advice. But this is typically how we've seen it play out right?
Yonah: [00:21:39] 100%.
Steven: [00:21:40] Okay. Well this is really phenomenal. And so if somebody is a passive investor, and we have a number of those that are listening, and a number of operators that are going to be advising passive investors on how to look at different deals, how should a passive investor be looking at a sponsors deal and how can they understand what's realistic when it comes to the depreciation that they might be able to expect in return? How do they kind of confirm that, hey, this makes sense and this is accurate, so that I can receive the benefits that are being projected?
Yonah: [00:22:11] Sure. One of the things that surprises a lot of investors, or a lot of operators at the beginning is at the end of the year, when they get their tax returns, and they get their k one statement, which is basically a list of what their rental property income is, and what the deductions they've had. And they're surprised that it's a negative number. All right. And they're like, wait a minute, I thought I made money on this investment. And you're saying I lost money? No, I stop right there. It means that you have more deductions, then you actually have income, but the income that you made is tax free, is what that means. So the thing that a lot of investors, especially passive investors need to realize is that, yes, you're limited to how much of that depreciation you can use. But it's first and foremost used to offset rental property income. So if you have a number of investments, across different rental properties, you can use depreciation from one spills over to offset income from other investments as well. Okay, so that's first and foremost, your investment, most likely, for the first, at least three years, if not five years of the investment, if you're doing a cost segregation, you're probably going to have the returns on those investments tax free. Another thing I'll just add in here, which has nothing to do with depreciation, but it's a very cool thing a lot of people don't know as well, is that from a tax perspective, if you do a refinance, and I know a lot of sponsors like to return a portion of the capital invested, the principal invested to the investors upon that capital event upon the refinance, the money that's coming to you from that refinance is also tax free. That's tax free money. So that's a very interesting fact over there as well. So again, just to reiterate that the biggest thing you want to know as a passive investor, and as a sponsor, is the income you're getting is most likely going to be tax free, or minimize extensively. And that's going to play out for at least the first three to five years.
Steven: [00:24:10] So that's really, really important to know. And that's if we're not taking into account bonus depreciation. And so tell us what bonus depreciation is, and when it's relevant.
Yonah: [00:24:19] It's called 100%. bonus depreciation. It was a new rule that came about in the tax cuts and JOBS Act in the Trump tax reform a couple years ago. And what that says is, once you've done a cost segregation study, once you've allocated assets to faster depreciation schedules, instead of just spreading those depreciation over a faster schedule, you can actually have the choice the option to take the entire amount 100% of that in the first year as a tax deduction. So in our example, before the beginning, we're talking about a 25% of your purchase price in deductions that you're spreading over a five year period and a 15 year period, you're gaining a lot over that amount of time. But you can have the option to take that in first year. When you're talking about a million dollar purchase, that's a $200k to $250,000 tax deduction in the first year. I mean, it's just huge. It's a game changer. So that's what bonus depreciation is. That will certainly create that passive loss, that negative k1 balance. But you know, not all is lost, because if you can't use it this year, it carries forward and you can use it in future years.
Steven: [00:25:25] Yep, that makes a lot of sense. And then the final thing that I really wanted to talk about here is that, you know, at the end of the period, we're going to sell the property, there's often, you know, depreciation recapture. Talk to us about what happens there, and what investors and operators need to be thinking about when we come to the end of an investment.
Yonah [00:25:46] So as you mentioned, there's something called depreciation recapture tax. It's a misnomer. Some people think that it means you have to pay back your depreciation. That's not what it means. It actually means you're just taxed on the amount of depreciation that was taken over the investment period over that holding period. So if you're doing cost segregation, you are taking more depreciation upfront, which means you're going to be taxed on that entire amount later on. That's something to note, that's something important to kind of put into your business plan, perhaps. But it's something that you should know that you're subject to this. Every tax that you're subject to, does not necessarily mean that you have to pay that upfront, because there are other strategies and ways to avoid that. And so I'll maybe touch on a couple of those, because it is important. It's not to think, Oh, well, yes, I'm taking the deductions now. But I'm actually gonna have to pay them back later. It's not so. First of all, the income tax rate that you're taxed that for ordinary income tax is a much higher rate than what depreciation recapture tax would be down the road. So anyways, you have that the time value of money, you have the arbitrage, you know, the difference between what you would have paid, had you just paid the tax up front, but the time value of money is saying not only inflation, that I'm taking advantage of now, but also, what I'm going to reinvest this money, what can I do with this money? Listen, if you trust Uncle Sam to invest your money better than you do, then, you know, maybe this isn't for you. But I think most people agree that if you have the cash, what you can do with it and you can spend it and invest it better than the government does. So I would take advantage of that. A couple of those strategies I mentioned to get around that. And again, this something can be different for everyone. Something to discuss with your tax advisor, for sure. But first and foremost, a 1031 exchange. A lot of you will know about this, that when you sell a property, you can exchange it for another through this, you know, jump through these hoops. That differs your capital gains tax. It also differs this depreciation recapture tax. So one way to get around it is there. Another way is, and again, I'm only getting into one more. But there are several ways is that, as I mentioned before, if you have a huge passive loss, if you have a huge depreciation deductions from one property, and you sell another property in the same year, you can actually use those losses to offset the gains to offset the tax from that other property. So not all is lost when we're talking about depreciation recapture tax. It is something you should consider and definitely look into.
Steven: [00:28:18] No, that makes sense. And people need to be thinking about that. As a passive investor when I'm receiving that on my k1, what is the impact there and can I make the decision to take that or not take it?
Yonah: [00:28:30] So it affects you regardless. When you get that deduction, it stays there, and that passive loss just carries forward. So you don't have a choice, once the operator has decided to take the depreciation and allocate it, it's done on the property level. And so that is split up and allocated proportionally to whoever you know, however much the investors own their shares, they get proportionally through the income, their returns, they also get proportionally their deductions. The one time where that might be different is if the property is owned by tenants in common type structure, which is a tick structure is a different way where actually individuals or groups of people might be invested in portions of the property and each tenancy in common entity is taxed differently.
Steven: [00:29:23] Yeah, that makes so much sense. Well, this has been really, really great. Where can people find out more about you or get in touch?
Yonah: [00:29:29] Best way to find me is on LinkedIn. You can find me there. I'm very very active there. In fact, I check that more frequently than my email. You can go to yonahweiss.com. So just my name. Find a lot about what we're up to. You can find our company through that website as well Madison specs. And if you do want a free feasibility analysis to check out if it might be for you or not, you can enter a form through that website and we can work that out.
Steven: [00:29:54] Wonderful. So great to have you on today. Thank you for being here and Look forward to the next time we get to have you on
Yonah: [00:30:01] Likewise Steve. Thank you so much for having me.
Steven: [00:30:09] Thank you for listening to The Investor Mindset Podcast. If you like what you heard, make sure to rate, review, subscribe and share with a friend. Head over to theinvestormindset.com to join the insider club, where we share tools and strategies from the top investors and entrepreneurs and how to take it to the next level.