Episode 12: Yonah Weiss: All about saving on Taxes with Real estate

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 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 deduction