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 top podcast Weiss Advice.
Key Point Summary
- All kinds of deductions that you might have if you have a mortgage is mortgage expenses deduction. Often, when you do real estate tax savings, the topic is all about this thing called depreciation.
- The IRS allows you to take a tax write-off tax deduction based on the concept your property will go down in value as time goes on. The day you buy a property is the purchase price spent on buying, even if you only put down a certain down payment. The whole purchase price is taken and then divided by 27 and a half years. That’s the amount of time the IRS says that multifamily properties depreciate.
- When you’re talking about the tax benefits of tax deductions, that’s the biggest one. It’s basically a free deduction that you’re able to lower your tax liability by a huge chunk every single year just by the fact that you bought the property.
- Yonah says that there’s no difference between single-family to multifamily. The only difference is that when you get into other commercial properties besides multifamily, instead of being a 27 and a half year depreciation schedule, it’s a 39-year depreciation schedule.
- The purchase price determines how much depreciation you can take over the ownership. It goes down to take off the land value, which is deducted, which can sometimes be turned by an appraisal with the appraised land value or county property taxes.
- Yonah says that the deposition is applicable for new construction but only if it is a new construction to hold meaning as a rental property. It only begins once you place it in service, so your tax deduction only starts once the construction is fully completed.
- According to Yonah, it’s really just an advanced form of depreciation where we take the cost and instead of taking the whole thing as a lump sum and dividing that by 27 and a half years, the IRS says that you can segregate those costs into different categories that depreciate things in your building as you depreciate on different varying levels.
- Yonah says you can take a huge chunk of the cost over a five-year deduction period instead of lumping it all together and just taking a little bit each year.
- Cost Segregation benefits those who are just trying to call the property for a smaller duration of time to get that advantage in the years that they hold stuff taking it over.
- Suppose you are a real estate investor who buys multiple properties, continuously investing, and buying more and selling maybe. In that case, you can really benefit from this no matter how long you’re holding it for. Because depreciation for one property can be used to offset your income from all of your properties. It’s a strategy that couples with the overall business strategy of investing.
- Rental income is considered passive income. A huge amount of depreciation is passive deductions. Your passive deductions are used against your passive income and it’s lumped together. If you have one or multiple properties, all of your passive income is locked all together in one bucket, including all of your depreciation.
- Yonah says that everyone’s greatest goal is to take advantage of the passive sides of the income.
- Passive deductions can only be used against your passive income. The exception is that when you’re considered a Real Estate Professional. You or your spouse can qualify for the status but only one of you is qualified. Once you have this qualification, you now don’t have that limitation. The passive deduction is only used against the passive income. You can use the passive deductions to offset your active income. You cannot use your passive deductions from depreciation to offset your W2 income.
- The real estate professional status is the way if one spouse is for example is a property manager or is a realtor broker and the other spouse has a W2, you can use that those deductions to offset both of your income from a W2 as well.
- One of the things Yonah does with Madison Specs is that they always provide a free feasibility analysis for any property. This allows you as the owner to understand how much the tax benefit will be per property, so you can make a more educated decision. According to what their situation is, each person will determine whether it makes sense to do causation on all your properties and which one will be the best one.
- Yonah thinks that the best time to get it done is to be educated, have the ammunition, and have the tools before you actually need them.
- Yonah likes to speak to people before they buy a property when they’re under contract or they’re looking at it. He provides them with feasibility analysis and allows them to see what it can do. Once they acquire the property, that’s really the best time to get it done. If it’s new construction, it’s ready to be rented out once the construction is totally finished, then that’s the best time to actually get it done.
- If the sponsor does cost segregation, then in the first five years, you are actually probably going to have no tax liability because of the cost certification. You’re going to get your return, but that’s going to be taxable income. That’s the main thing why conservation is better even from a passive investor who is a W2 worker has a better return overall. When you look on a long-term basis, you will get well. If you have more money, that means you can invest more money. The more money you have that is not taxed, the more money you can invest. The compound interest is that blows away any other type of investment.
- Yonah says that when you buy a property, that’s when your depreciation starts, and it sets in stone based on your purchase price because that’s how much money was spent.
- When you do upgrades, any money that’s spent after acquisition or on improving the property is now added to your tax basis as well. That money can be depreciated as well. You can get more tax benefits by deducting the money that’s spent later on.
- After investing in real estate for a couple of years, a client of Yonah were getting so many tax benefits that they couldn’t use it because it was just creating big passive losses. They decided to go full-time into real estate because they make more money by also getting the tax deductions than they would have in their higher-earning W2 jobs.
- There’s a big difference between a CPA and a tax advisor. Yonah says that most CPAs are just there to plug in numbers, take your income, fill in the forms, and put it out there. They’re not necessarily going to be proactive to tell you about all these new tax incentives or deductions.
- Yonah says that CPAs are not necessarily going to be proactive. There is a big difference between a CPA and a tax advisor where they can be the same person, but often, they’re not.
- Yonah says that it really depends on the person and what their goals are. Social media can be very misleading where there’s a lot of people out there that have lots of followers, but at the end of the day, you have to use your own time efficiently, and you kind of have to figure out your own strategy
- Yonah’s biggest goal is networking, where he’s creating content and engaging with other people. He spent his time and developed this over the years of just consistently doing something that works for him.
- Ensure that you have a profile that is up to date and can speak to who you are.
- You want to get to know you and the way to do that is through engaging, not necessarily by putting out your own content, but by engaging, liking, and thoughtful comments on other people’s content
- You can create a big following and by socially engaging with other people’s content and creating community by just having conversations with those same people over and over again.
- Yonah loves what he does. He loves to do his podcast and have conversations with other people. He spends lots of his time on social media because it flows into his workflow and what he does.
- Yonah has 2 goals for podcasting. First is a way to have more conversations with people that he actually likes and hopes that there’s enough value in there for other people to listen to and get something out of it.
- Having a podcast is the number one tool that’s by far better than social media because it flows into better than a website. It is the number one tool for building a brand and building a following of people who actually want to get to know you.
- Yonah learned that it’s all about networking. It’s about the team members and having good parterships, which he actually started to do.
- Yonah is looking forward to getting more involved in learning what he can bring to the table. He says that you don’t necessarily know all the ins and outs if you’re starting in real estate. You don’t have experience with operations, but there’s so much from whatever you are good at that’s transferable that can be valuable in a partnership because no one person can do everything.
Key Quotes
[24:28-24:31] “It’s not about how much you make, it’s about how much do you keep.”
Connect with Yonah Weiss on
LinkedIn: https://www.linkedin.com/in/cost-segregation-yonah-weiss/
Check out his website at https://yonahweiss.com/
Madison Specs: https://madisonspecs.com/