Cost Segregation Tax Strategy

So this week's Tax Tuesday on Main Street topic, 30,000-foot view, is on cost segregation. What are cost segre— what is cost segregation? So normally you buy a rental property, a residential or commercial property, you take that number, you carve out a piece of land because you can't depreciate land. And then let's say it's a commercial property, that the balance then is depreciated over 39 years, which means you get 1/39th of that cost as a deduction each year. So a cost segregation study says, look, we're going to go into this building and there's components of this building that clearly are not going to be 30— shouldn't be 39-year life assets, right? So we're going to take those and carve them out, put them into 5, 7, and 15-year buckets. And what that does is it takes an expense that you normally would have had to take over 39 years and it compresses it down into either 5, 7, or 15 years, generally 5 or 15 because— 7-year is furniture, fixtures, things like that. So, but it takes that number and it compresses it from 39 years down into 5, 7, or 15. And what that does is it takes an expense that would've, like I said, spread over 39, compresses into a shorter life early in the asset's life. So you increase the amount that you can deduct in those early years. Now, when you combine a cost segregation study with bonus depreciation, says, look, if you have a 5, 7, 15-year asset, you can depreciate that in year 1. All of it, 100%. And why that's awesome then is you just took that 39 years, compressed it into 1 year, severely increasing that deduction in the first year. And that creates— a lot of times it'll create the losses that we're looking for. Now, again, these are passive losses, and passive losses can only be used against what? Passive income, right? So when you decide whether or not to do a cost seg study and use bonus on that, You want to make sure that you can in fact use it because if you have no other passive income or if you're going to sell the asset in a year or 2, there may not be a good enough reason to do this because it costs money to do these things. And if you're going to sell the asset in a couple of years, you got to recapture all that depreciation anyway. So, just make sure that before you do it, it fits in line with the strategy and the goals that you have when making the decision whether or not to do this. So, We're going to do a deep dive on this. It's going to be one of those, the first ones that we do a longer version because there's a lot of nuance to this. But again, this is just educational to let you know that these things exist. If you have any questions in the meantime, hit me up. Talk soon. We're going to try to get that video done by Monday or Tuesday. Talk soon.