Wealth Podcast Post

Cost Segregation with Joe Viery

George Grombacher April 15, 2022

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Cost Segregation with Joe Viery

LifeBlood: We talked about cost segregation regarding investment real estate, how it works, who can do it, when it makes sense, and what the process looks like, with Joe Viery, Managing Partner of US Tax Advisors Group, Inc. 

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You can learn more about Joe at USTAGI.com and LinkedIn.

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You can learn more about us at LifeBlood.Live, Twitter, LinkedIn, Instagram, YouTube and Facebook or you’d like to be a guest on the show, contact us at contact@LifeBlood.Live.

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Our Guests

George Grombacher

joe viery

Joe Viery

Episode Transcript

george grombacher 0:00
Come on one level, this is George G. And the time is right. Look, today’s guest strong a powerful Joe viry. Joe, are you ready to do this?

Joe Viery 0:18
I am base George,

george grombacher 0:20
excited to have you on. Joe is a managing partner at United States US tax advisers Group Inc. He’s working with real estate investors helping them save hundreds of 1000s of dollars on taxes. Joe, tell us a little about your personal life smart about your work and why you do what you do.

Joe Viery 0:38
Well, my personal life is I live in San Diego, California. I’m actually one of the few that was born here. And basically, I’m from an entrepreneurial background. When I was in college, I started a business. I own that for 20 years, it was not in the financial arena that I’m in now it was in the actually the travel business. And then I segwayed sold the business in 2000 gotten involved working with the California Association, realtors. And then in 2007, the California Association of Realtors, as well as the real estate industry took a dive off the cliff. And I was asked to join the Cost Segregation industry. I had a few clients who had a write a check for 50,000 to the IRS, and I was able to prevent them from doing that. Or have them keep the money. And so then when the real estate market melted down, I went right into becoming a Cost Segregation specialist. And then I have a I’m not married now. But I have one girl Jordan as a child. And then I have family and friends in in California and they’re important to me. Love it.

george grombacher 1:53
Nice. Cost Segregation. I don’t know that. When you tell people that? Do they know what that means?

Unknown Speaker 2:02
No. Not even accountants don’t know what I mean. I mean, I’m being a little tongue in cheek. But right now today, accountants should know what Cost Segregation is when I first started in 2007. People thought it was a scam. And they had no idea what I was talking about. But nowadays it is. So it is so important to most investors who own real estate that most accountants, if not 100% are going to at least know how to spell cost segregation. But there’s still very few clients in accountants that apply cost segregation, and it’s really valuable.

george grombacher 2:40
So give us give us a breakdown of what it is.

Unknown Speaker 2:43
Okay, you know, I work in, in, in an industry, which is, I think, easy to explain, but it’s very difficult to, to do. We’re an engineering based company, so I don’t give tax advice. So we’re not here for taxes. We we apply engineering studies to reduce or eliminate income taxes. The primary one is cost segregation. And what it what it is, is that the IRS recognizes through the concept of depreciation, that the owner of real estate investment, real estate, not primary residence, that’s not depreciable. But investment real estate, are using up their buildings right before their eyes and you don’t have if you own real estate and you look down at the carpet, you understand the carpet is wearing out in will need to be replaced. You know, at some point in time Well, there are hundreds of building components that the IRS gives shorter lives to because they know that they’re not going to last. So if you take the easy way to calculate depreciation, a child can do it, what you do for residential is you take the building basis, and you divide by 27 and a half years for for commercial buildings, it’s 39 years. So my value proposition is really simple. I will ask the client, do you want to have your depreciation expense over 40 years? Or would you rather have it all upfront giving it to you now to wipe out eliminate in for you to save your income taxes, and his savvy investors almost always say I want my depreciation expense now. So what we do is we accelerate the depreciation expense. So the clients get that big bump the year they apply my study.

george grombacher 4:27
Nice and so he says savvy investor wants it all up front. Why is that just

Unknown Speaker 4:35
well, because they know the time value of money. So yeah, you could wait 39 years to get your little depreciation expense every year for 39 years. The savvy investor does Why am I going to write a check out to the IRS for 50 100 is that’s all we’re doing. We are telling the IRS that we are going to take this deduction in this year and we want to save on income taxes. It’s completely aboveboard and even First small, small, single family home, I can say that I can give them the smart investor may get you know, they get distracted and they don’t do it. The smart ones understand the power of having $1 today. So

george grombacher 5:19
yeah, I appreciate that. Alright, so he talked about how it’s an engineering study is that because that’s how the IRS refers to it as

Unknown Speaker 5:29
they said, Look, if this is the way you want the building owners to depreciate their buildings, then tell them so basically took him years. But in 2004, they published the audit technique guidelines for cost segregation, which I invite anybody who can’t sleep at night, to go and get that 200 page document. And basically, what the IRS says is the number one methodology for doing what we do is by having an engineer do the work. And the reasons are very simple. You know, I can point to the carpet, you know, that’s carpet, but I will ask any accountant or any property or most property owners, do you know, what’s on the other side of that wall? Do you know it’s up above the ceiling? Do you know it’s down below? And in all that, you know, the rules and regulations of how this stuff works? And of course they don’t. So that that’s why you need an engineer, because engineers, construction engineers know how buildings are built. And they know all of the components in the building and what is legally allowed to be accelerated.

george grombacher 6:34
Got it. So for each case, for each one of your clients, for each scenario, a new study needs to be done, are you able to rely on previous studies?

Unknown Speaker 6:44
No, it’s one and done. And I would not rely on a previous study. So basically, when somebody acquires a building, or if they bought a building within the last 15 years, we can do a look back study. And that’s a misconception. A lot of people, they think it’s only for tax year 2021, I go back to tax your 2007, eight and still make the magic work. That’s a look back study. And all we need to do on a look back study is we need to take into account the depreciation they’ve already taken using straight line for those for those 15 years, and then calculate how much I’m going to accelerate. And if it makes sense, after we’d be done with they’ve already taken, then the client will most likely move forward. So we can look back studies and we can do current. Current tax or studies right now we’re in tax year 2021. So we’d be looking at any properties that were acquired in 2122 is is of course possible, that your taxes for 22 won’t be filed until next year. So it’s not imminent. It’s not where you know, people need to do it. But they do need to do it for tax year 2021. If they if they’re an entity, the tax deadline is March 15. So that if that property is off the table unless they file an extension, but filing an extension is not a big deal. But if you’re going to try and apply my results for March 15, I will tell you, you can’t

george grombacher 8:13
know time. Fair enough. So when when you’re talking to other advisors, professional advisors, or potential property owners, or potential clients, are most of them just assuming I can just do a little bit at a time. And that’s what they’re doing sort of on their own.

Unknown Speaker 8:33
It doesn’t really work that way. But like I said, I think what happens in my world is that accountants, and a lot of people just don’t want to get anybody else involved in the whole discussion. So the easy way out, is just divide by 27 and a half. And I don’t need Joe. Well, yeah, you can do that. But then you’re gonna pay all this income tax that you didn’t need to pay. And so then, you know, they kind of understand that, you know, if they really want to take advantage of accelerated depreciation, they really need an expert who knows what they’re doing, and can defend their work unless the IRS in case the IRS asks them to defend, you know, if they have any questions. Right now, in this day and age and in in 2022. Cost Segregation will not create any questions by the IRS, it is that well known that they’re not going to say, oh, cost segregation, let me look into your tax return. Absolutely not. Now, what they may do is they may look at the tax return for another reason, they may see that they did cost segregation, and the aggressive agent for the IRS might go well, let’s take a look at what you did, or happy to answer their questions because we do everything by the book. And if they have any questions, I say, just get me on the phone. And I can talk to the IRS agent and the questions will be answered in this story.

george grombacher 9:58
Appreciate that. Is that, and that’s a perfectly natural thing is fear of the IRS and not wanting to run afoul of rules? Is that the most common reason that people say, You know what, Joe, this sounds great, but I think I just got to keep doing it the way I’ve been doing it.

Unknown Speaker 10:16
Ah, you know what I think the number one reason is that even in this day and age, people just don’t know they can do it. You know, you listen, you listen to the news. And remember, when the Trump Tax Act came about a couple years ago, you know, nobody really even understood what they were granting to, to, to real estate, they gave a lot of benefits, but the average person, they don’t even understand what was in that tax bill. There’s a lot of good things that were in that tax bill for people who own real estate, and a lot of them just don’t know it. And accountants, in my opinion, are great people. I love accountants, but their main job is to file a tax return. A lot of them don’t think their main job is to is to know that how they can save money on on the tax return, they still have to file it. So I think the main reason is people just don’t know that that I exist. They don’t know that accelerated depreciation exists. And they certainly don’t know how to do it.

george grombacher 11:18
Right. It makes sense that a lot of the times it’s probably let’s just leave well enough alone and not upset the applecart things going pretty good. So let’s just keep keep good going kind of a thing. All right. So you mentioned $50,000. At one point, is there I guess you could just look at it from an average home value, perspective or business and then just do the math? Or is, is there a cap? How does it

Unknown Speaker 11:47
work? No, there’s no cap. But what we do to alleviate a lot of these, these questions we don’t charge for this is we do an estimate. And so what we need to do is gather some some information on the property. And then we I talked to the engineer, we look at the time involved, because our fee is based on time. So we look at what kind of property it is, where it’s located, and all the factors that we need to look at. And then we will give them an estimate. And in the estimate that I give, most of the time, we have a value proposition. And the value proposition is a simple concept. I’m saying to the client, look, if you give me $1, what are you going to get for that dollar, what I like to see is at least 10 times what I charge them in my fee. So if I charge them $1, I want them to save $10 in income taxes. So I use the same, the same idea in what I do. And then I advise them to go back to their accountant, and then talk to the accountant say okay, Joe’s gonna give me X amount and accelerated depreciation, Mr. Accountant, do I need it? Now? Why is that important question. Because I don’t know the situation for the individual taxpayer? And so I can’t answer that question. And to be honest with you, really, a lot of people don’t pay income taxes, there’s a lot of benefits to owning real estate, they may not need me, if they’re not paying enough taxes. If somebody says, I’m not writing a check out to the IRS, I will say don’t do it. You know, don’t don’t bother doing it. So what I do is if somebody wants to kind of get an idea, I will tell you for rent and for residential, if they know their building basis, and building basis is relatively simple. It’s simply how much did you pay for the property? How much did you allocate to land, and the leftover is building basis. So if we use $120,000, single family home, you deduct 20,000. For land, I am dealing with a basis of 100,000. If they want to use 20, about 25%, it’s a little high, but just for easy math 25%. That’s about how much I’m going to give them in additional accelerated depreciation for that tax year. So I’m going to give them about 25,000. So obviously, if it’s a million dollar commercial building, I’m going to give them a $250,000 additional depreciation for that tax year. That’s a huge amount of money, even the $25,000 for $120,000. Home, that’s a huge dent in their tax bill, if it doesn’t wipe it out entirely.

george grombacher 14:25
Yeah, that certainly makes sense. And to your point, if you’re not actually paying income tax in a given year, then that probably doesn’t make sense. Right? Would it carry forward potentially?

Unknown Speaker 14:38
Oh, yeah, no, that’s one one good concept that a lot of folks don’t understand. Is that look at it like a bank account. One of the things you can’t do is you can’t time depreciation. So in other words, if I give you a million dollar building $250,000 And let’s say you only need $100,000 to zero out your taxes, you still got $150,000 in your bank account. But what you can’t do is you can’t tell the IRS, why only want to take 50,000. No, you have to take the maximum allowed to wipe out your income taxes, the above and beyond will just simply carry over into the following year and the following year in the following year until your bank account of depreciation is used up. So that’s one thing, I mean, you really can’t get hurt by by accelerating your depreciation, because it carries forward. And even if you sell the property, it’ll carry forward and it can be applied to the taxation when you sell a property. Now those who sell property for cash are the ones I’m talking about. If you do a 1031 exchange, that’s not an issue. If you pass on and your children get the property, again, that’s not an issue, the only issue comes about is if you’re selling a property for cash. And what we tell our clients is that because of the concept of depreciation recapture, is that, you know, they really shouldn’t do cost segregation. Unless they’re planning on holding the property for two years. They’re not gonna hold the property, if they’re flippers or they’re gonna hold out, they’re gonna sell the property next year, I would tell him, don’t do it, because you have to pay me. And if you’re only going to hold it for that long, you know, it’s probably not going to pencil out very well. So you know, because you are going to have to pay some of this depreciation back when you when you sell the property for cash. The good thing about cost segregation, though, which let very few people know is that cost segregation reduces your depreciation recapture. Now, that’s a very complicated process that I’m talking about. So if anybody wants to understand what I’m referring to, they would need to contact me and I can have that discussion, because few accounts understand how Cost Segregation reduces depreciation recapture.

george grombacher 16:48
Nice. Well, Joe, people are ready for that difference making tip, what do you have for them?

Unknown Speaker 16:54
I suggest well as a couple of tips. But number one is, I think this is really important. If you are involved in investment, real estate, get an accountant who knows real estate. There’s a lot of great, wonderful accountants out there. But if they don’t, if they’re not savvy in real estate principles, it’s not worth doing it with somebody who doesn’t understand how to spell depreciation, doesn’t understand 1031 exchanges, doesn’t understand 3115 changing, you know, I mean, there’s so many concepts out there, the number one tip is Do yourself a favor and get somebody who understands how real estate works in the tax world. Because, again, a lot of times you don’t want somebody who’s just filing a piece of paper, you want somebody who’s proactive, and can help you save money. So that’s my tip. Well, I

george grombacher 17:47
think that that is great stuff that definitely gets Come on. Yeah, it’s fascinating in the world of finance, but specifically in the world of tax and accounting, just how, how specialized certain segments are. And this certainly is an area that you better know what you’re doing. So

Unknown Speaker 18:04
let me interrupt for just one brief second, is we do a couple different types of studies. In the reason I mentioned single family, because there may be some savvy investors out there, they’re going like, wait a minute, my accountant said, it’s not going to work for a single family home. Well, the reason it won’t work is because if I do a detailed engineering study, that means a building that has a basis of of over a million dollars, I’ve got to find that property. And we’ve got to document all the building components. But we also offer a modeling technique, where we’re not going to find the property, we do everything with our algorithms and our software. And it’s still done by an engineer, but we don’t go out to the property and we don’t inspect it. So we can do those very cost effective. And I can do a single family home as an example that you purchase for $120,000. And I can give that owner the $25,000 tax bump. So we’re one of the very few that do these types of studies.

george grombacher 19:00
Nice. I love it. Well, Joe, thank you for coming on. How can people engage with you? How can they get in touch to to get one of those estimates you were talking about earlier?

Unknown Speaker 19:10
I think the easiest way is go to the website. It’s US tax advisors group Incorporated, but the easy way is you STAGIUST agi.com And bottom line is they will get our contact information. So if they want to call me in and talk to me about any of these strategies, any of these concepts, I’ve been doing this since 2007 and there is very few things revolve involving depreciation that I don’t know. So if somebody just wants some information, I invite invite them pick up the phone, give me a call and I’ll help them love it.

george grombacher 19:48
If you enjoyed this as much as I did, show your appreciation and share today’s show with a friend who also appreciates good ideas or as a real estate investor certainly go to U S. Tagi. dot com and check out the gray resources and take Joe up on his offer to have a conversation about cost segregation and depreciation thanks good Joe

Unknown Speaker 20:09
All right George thank you very much

george grombacher 20:11
and until next time keep fighting the good fight we’re all in this together

Transcribed by https://otter.ai

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