The Conscious Investor
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The Conscious Investor
Ep519 Yonah Weiss on Cost Segregation and Tax Strategies
How can a biblical story inspire a successful career in real estate investing? Join us on the Conscious Investor podcast as we welcome Yona Weiss, a leading expert in cost segregation and a key figure at Madison Spex. Yona shares his incredible journey from being a teacher to becoming an influential figure in the real estate world, all while maintaining a commitment to serving a higher purpose. Learn how his unique approach to education has empowered investors to maximize their tax benefits and enhance their investment strategies.
Ready to unlock the secrets of accelerating tax deductions? Our discussion with Yona dives deep into the intricacies of cost segregation, an advanced depreciation strategy that can significantly improve cash flow for property owners. We break down the changes brought about by the 2017 Tax Cuts and Jobs Act, including the introduction and phase-out of 100% bonus depreciation. The conversation also explores the future of this provision and its implications for real estate investors, ensuring you stay ahead of the curve.
As the landscape of real estate investing continues to evolve, strategic planning and risk management have never been more critical. Yona sheds light on the enduring relevance of cost segregation, even as interest rates rise and tax laws change. Discover how proactive measures, like petitioning for lower property taxes, can safeguard your investments. We also demystify the concept of depreciation recapture and highlight how cost segregation can be a powerful tool for everyone, from seasoned investors to those managing short-term rentals like Airbnbs. Don't miss the valuable insights on working with a tax advisor to optimize these benefits and bolster your investment strategy.
Hello Conscious Investor and welcome back. I'm your host, julie Hawley. For over four years, I've paired my background in real estate, investing, education and coaching to create powerful content for you each week. This podcast is where we take a holistic approach to investing by focusing on three ingredients to a life of personal freedom health, mindset and wealth. We'll talk about everything from passive investing through syndication and how to use your retirement accounts to boost your investing, to mineral balancing and gut brain health, and into topics that cultivate your inner strength and resilience so you can thrive regardless of any of life's current events. And yes, those are all episodes currently available and linked in the show notes below. Join me each Monday for a mindset episode and later in the week for an interview with expert investors and health professionals, so that you can experience your greatest health, strongest mindset and build the wisest wealth. Yona, I'm just so happy to have you back on the Conscious Investor podcast. Thank you for coming.
Speaker 2:It's been a while. Thank you for having me. I'm grateful to be back.
Speaker 1:Yeah, it has been a while since you've been on the show, so, conscious Investor, you want to make sure you go back, listen to that, and one of the cool things about listening to these past episodes is that you get to see how we've grown, how we've evolved, and and then you're also going to see a through line how we've also remained constant, consistent and steadfast, and so I I like the combination.
Speaker 2:I love it and I. What's amazing to me is I remember, you know, we met, I think, right around the time just before you launched your podcast, close to five years ago, and that's just amazing to see how you've grown and how the podcast and the platform and everything has grown and come to what it is today. So I'm grateful to be along for the ride.
Speaker 1:It's always a joy, and I could not think of someone better. There are so many things taking place in the real estate investing space, and that's not new. That's the norm. The norm is something's changing and I couldn't think of a better person to come on and speak with a conscious investor about hey, what are we doing with cost segregation and what does this landscape look like right now and what is it going to look like. But we cannot go there because I haven't asked the question. And, conscious Investor, I felt you asking that question. I totally felt it so, before I jumped the gun, we're just over. I'm like, oh, I'm so used to, you know, just enjoying time with you. Let's see. Let's ask the question of all questions what, what do you do and how did you get started?
Speaker 2:Well, you know, I could. I could take this in a completely different direction.
Speaker 2:You can do whatever you want, you know because I, what I, I do it's funny because there's uh, my name is is yona, which is the hebrew version of jonah, which many people from the bible are familiar with. That story, right, and we actually read it once a year in our jewish tradition, on yom kippur, the holiest day of the year and the, when jonah was on the boat before they threw him off to be swallowed by the whale right or the fish, whatever it was, they asked him who are you, where are you from? What is your occupation? Right? And? And? And.
Speaker 1:he answered Exactly what they asked him. That's so great. I've never thought of it like that.
Speaker 2:Well, when you asked me that question, that's immediately what came into my mind, because it was the same two questions that were asked to my namesake, and he didn't answer them the way that one might expect. And so that's what I'm going to do to you is I'm going to answer it in a way that you might not expect. And he said, and I'm going to do to you is I'm going to answer it in a way that you might not expect. And he said and I'm going to say in Hebrew first, because it's easier for me to translate it after I actually say it in the original he said, which means I am a Jew, right, I'm Ivri, which was the original name that came from the other side, and the God of the heaven and earth, I fear, like that's, I serve God and that's who I am, and that's what I do. They asked for his occupation, right, what do you do?
Speaker 1:And that's what he said. So he asked me.
Speaker 2:What do I do? That's what I do. That's what I try to do, at least on a daily basis, practically speaking, for my income. I am a cost segregation expert, which means I work for the biggest national company that does cost segregation Madison Spex and we serve thousands, tens of thousands really, of investors across the country in this capacity, in this service.
Speaker 2:And how did I get started in that? Well, I'm not going to answer the first part because that would be too long, but the second part how did I get started? And I actually grew up. I grew up, but I started out as a teacher for many years and then, about nine years ago, I got into the real estate space and, from one thing to another, I ended up being introduced to this company, madison, and they were looking for a business development. I didn't really know the first thing about cost segregation at the time and don't have a background in accounting or engineering, which is what it's about. Again, my background was in teaching and I really came in and filled the role to help grow the company through an educational aspect. And really that's what I've been doing over the years is just really educating people about this topic people don't know much about, and once you learn about it, it's essentially a no-brainer to use it if you need it, and so that's kind of my approach.
Speaker 1:Okay, I love all of this. And I have to go back to Jonah, because because I, I I love the old testament, conscious investor. You've heard me actually say like I don't want to have a jonah moment. You know, like in the sense of uh, relating this part of the story where I'm like I don't ever want to find myself out of vertical alignment with the sovereign god, like I could have a propensity to maybe, maybe just go ahead and do the people over there. They're kind of I don't like them. They're kind of jerks, like I'm like I have some of that realness in me too. I'm like we're all human right.
Speaker 1:So, I'm kind of like I don't want to have that Jonah moment where I not surrendering to whatever the plans are that God has, or even to that, even to the, the mercy and the kindness and love that God wants to show through people. So I'm like, oh, okay, let me not have, let me not, you know, have to get thrown into the oceans to learn to go back and do so. I'm like'm like I, that's one of my favorite accounts because it's such human nature, so absolutely I want to say thank you for bringing that up yeah, it's incredible those questions that you asked just immediately.
Speaker 1:That's where my head went, so and it and it immediately goes, and I didn't't know that Yonah was translated to Jonah, so that's like really cool.
Speaker 2:Exactly. There's no J in the Hebrew language, so every name that you know that's a J from the Bible actually is. It's really with a Y and somewhat similar to that.
Speaker 1:I'm glad Cause now I just learned new and I appreciate that and I love that. We both have backgrounds in education and I feel like over the years, it's been like a little kindred spirit between us, like how do we educate, how do we serve? He does such a powerful job. You bring so many people together. In fact, I recently connected one of my good friends with you and that was through the LinkedIn challenge that you, that you, host. So I'm going to give a little bonus plug here. Conscious Investor, if you're trying to level up your LinkedIn game, you need to go follow Yona and participate in his 10-day challenge, because you learn so much. It's such a great thing.
Speaker 2:Thank you. Yeah, it's a lot of fun.
Speaker 1:It's pretty crazy cool. Oh, thank you. Yeah, it's a lot of fun, it's pretty crazy cool. So let's dive into because I could go off onto all these little tangents because they're so fun and you're so gracious. Let's dive into cost segregation. Let's say, let's just start at the simple form what the heck is cost segregation and why does somebody want it in their life?
Speaker 2:Right.
Speaker 2:What does it? Does it mean? Like, why do I want? What do I have to do with segregation? You know these days it's a weird name, right, and essentially what it is is an advanced form of depreciation. So that's what I have to think about it.
Speaker 2:And depreciation is a tax deduction. Anytime you buy any property besides for your primary residence, the IRS allows you to deduct from your income taxes a portion of the value of a property. It's called depreciation and over a 27 and a half year period for residential properties or 39 year period for commercial properties, you're literally able to write off the entire value. So you think about this you buy a property, you're able to write it off like a tax write-off for your income taxes, but you can't do it all at once, so it's like a little bit every single year.
Speaker 2:Cost segregation is taking that tax benefit, that tax advantage, and accelerating it and essentially front-loading some of those deductions to the earlier years of ownership. And the way it's done is through again this weird name, cost segregation. We're segregating the cost. The cost means the value of the property Bought. It, let's say bought, you know, for a million dollars.
Speaker 2:So now we're going to break it down into different categories. We're going to segregate that and say that the structure or the structural components of the property depreciate over this long 27 and a half year period. But certain things like furniture, appliances, fixtures, carpeting, flooring, cabinets, countertops, anything that's non-structural depreciates over a five-year schedule. And so we're segregating, we're essentially breaking it out from one whole and putting it into different buckets, which allows you then to take these deductions at a faster rate, which in turn increases your cashflow by, you know, obviously, not paying taxes, you're gonna have more money in your pocket to then, you know, use to reinvest. So, nutshell right, just Greedier's Digest version, it's the name of a tax deduction that allows you to create more deductions during the early years of ownership, creating more cashflow.
Speaker 1:So that's such a simple way of putting all of it. So let's go back. You've been doing this, you know you've been doing this for nine years. So like where, what changes have you seen over over this period of time? Like, what have we already witnessed? And then let's talk about what are we seeing happening right now. What are we?
Speaker 2:seeing happening right now. Yeah, so I got involved with COSIC just about seven years ago, but the biggest thing that happened shortly after I started doing it was something called 100% bonus depreciation, and this was part of the tax reform that happened during the Trump administration in 2017. It was called the Tax Cuts and Jobs Act. It was the biggest tax reform for about 40 years. It was called the Tax Cuts and Jobs Act. It was the biggest tax reform for about 40 years.
Speaker 2:Now, cost segregation itself has been around in various forms for about 40, 50 years, but this 100% bonus depreciation basically put it on steroids Excuse the analogy but essentially saying that once you've done a cost segregation study and broken out the property into these different categories of five year, seven year, 15 year essentially these things that can depreciate faster you now have the option to take 100% of those accelerated deductions in the first year.
Speaker 2:Okay, so essentially, getting that lump sum all up front instead of just more beneficial over the years. So that was the biggest difference that's happened that I've seen and that was huge for the industry. I think a lot of people got into real estate, especially the syndication world, during that time, you know, between 2017 and you know 2021, 22, where the 100% bonus was applied, and then in the books, when it was enacted that law, it actually had a phase out, which means in 2023, it went down to 80%, and then in 2024, currently, at the time of this recording, it's down to 60%, which means you can only take 60% of those accelerated deductions in the first year. So you still get a big lump sum upfront in terms of those tax deductions, but not as significant as you having it all upfront, and so that's that was, at least for me, the biggest you know by far difference. That's happened in the tax code and there has been talk about bringing it back to the 100%, but nothing has actually officially happened in terms of that.
Speaker 1:I feel like I've heard the conversations taking place on Capitol Hill and they're talking about it, but there is no final conclusive resolution. Everyone's all of us real estate investors are like bring it back, bring it back.
Speaker 2:Yeah, because we know how powerful it is. Right. We have seen firsthand what it means to pay zero in income tax and basically use that to help grow your wealth by reinvesting. It's been an extremely powerful tool. Now I will say that it was brought up. It was part of a bill that was passed in the House this past January, so it's actually gotten more than just talk. It was in legislation. However, it never went to the Senate to even be voted on that bill. It passed with a huge majority in the House but again, that bill was a whole like family tax reduction act, something like that, and it never went even to the Senate for a vote. So it may. The fact that it's being talked about to bring it back, uh, is a good thing, because maybe if there is a change of administration next year, there may be something to talk about.
Speaker 1:So let's talk about what the future looks like If, if nothing does take place, let's talk about then what's the landscape of the future.
Speaker 2:The landscape of the future for the cost seg is, first of all, like I said it's been around for decades and it will continue to be around for decades. There's no inkling of it going away entirely. However, the bonus depreciation component, which was a huge boost to the investors for that big tax deduction, is continuing to phase out. So next year 2025, we'll then go down to 20% bonus, or sorry, 40% the year after 20, and then 2027, we'll be back down to square one, where it was before the tax reform. So again, cost seg has been around for a while, will continue to be around for a while, but won't have as big as a kick, you know, as it did with the bonus depreciation.
Speaker 1:I think that's one of the really important things. Yes, the bonus depreciation is like absolutely amazing, because most people are not holding these commercial real estate, the multifamily, any commercial real estate for you know, 30 years or longer. Most people are holding them for now five to seven years, and so being able to utilize that is really powerful. But to just remember that the cost segregation is still going to be around. It has been around, that's not going away. It's this bonus depreciation and maybe in the next couple of years there will be a meeting of the minds and everybody will be really excited again and interest rates will be back.
Speaker 2:Right, exactly, and that's what I was going to say. It's the whole market and we've been feeling it as real estate investors that the whole market has been affected over the past couple of years with the rise of interest rates. And people are feeling it. And I just heard today, literally from someone who is very, very deeply involved in the commercial mortgage space, that something big is happening. Like you know, defaults are coming in in, you know, way beyond what people even expected, and so you know the we haven't even seen the worst of it yet, which is what my feeling is. And will it come back? Who knows? We can't predict the future, but we can, you know, plan for what we have and, you know, deal with the cards we dealt with.
Speaker 1:This is a shared philosophy that Yona and I have is live your best life right now, like, make good choices, live your life, yeah, and it will be interesting. I have thought for years interesting and I have thought for for years. I have actually said um, that the commercial real estate space in the, you know, leading into 2020, so, like 2017, up until you know, interest rates rising. It reminded me of the residential real estate space in the early two thousands leading into the oh eight crash. And so if we see, you saw, it coming a little bit.
Speaker 1:You know it. Just it felt like you know, when you know a storm's coming in and there's just a certain way that all of the air feels and everything it's like. That's what I felt, like I had transitioned at that time into the commercial real estate investing space and I'm like huh. Actually, now that I've been in this for a couple of years, this seems really oddly familiar, like familiar territory, let me, and so I proceeded very cautiously with all of my investing, because I was particularly on guard and like a fixed rate, long term debt check, like let's just make sure we're set on some of these things. If something goes sideways we will be okay, but yeah, I won't be too surprised if we do see some.
Speaker 2:Yeah, I mean, unfortunately, you know, investing has risks that come along with it, not beyond the bridge, debt and these floating rates and things like that. There are other risks that are inherently involved and sometimes there's really nothing you can do about it. And we want to be a conscious investor and really put to work our money the best we can and solid investments that have at least perceived lower risk, right, but you know, potential upside with a higher rewards, uh, but in the end of the day, uh, you know I hate to, I hate to say this, but it's unfortunately things happen and beyond our control, and I'm just sharing personally for the first time. I just had a call this week with a GP, a general partner, for an investment that I put money into as a limited partner, passive investor, right, and you think you're a passive investor. It's very passive, right? What do you do? You do your due diligence on the sponsor, who happened to be a good friend of mine, so I didn't have any problem with that.
Speaker 2:And we had a call this week that stuff's happening in the property that are completely beyond control. You know, like totally out of, nothing to do with debt, nothing to do with the mortgage, like zero, but things that are completely beyond control, that are affecting the investment, and you know what. You have to deal with it. So what am I doing? As a passive investor that doesn't want to lose my money, I'm trying to get more actively involved to see if there's anything I can do personally to help salvage not only my own investment but everyone else's. What can we do to make this work? And it's something you don't really think about, but you know, sometimes you gotta, you gotta step up to the plate.
Speaker 1:Yeah, this is, this is true, and I I really appreciate and this is you have such a kind heart and I appreciate that, yeah, things do happen that are outside of people's control, that you could never have predicted. I think one thing that and I say this cautiously, conscious investor, because we don't know but but when I look to the future and I've been saying this for a couple of years I anticipate taxes to increase. And so how are we, how are we looking at our taxes? And this is why cost segregation is so important and understanding it. It's like if the tax base goes up, if they are raising our property taxes, that's going to directly affect the performance of everything, and there have been instances I've heard of this already happening and people, teams going in petitioning and they've been able to be successful with their petitions to say, wait, you can't raise our tax out much. I mean whoa, but it is a real possibility.
Speaker 2:Yeah.
Speaker 1:And it's.
Speaker 2:you know, real estate is a business like anything else, and so you have to be aware of potential risks and deal with it in the most practical way. So yeah, if you can petition your county assessor in your county to get your property tax down, do it. You know it's definitely something that can be done.
Speaker 1:So it's a good idea. It definitely is. Let's go back. Let's go back to Costig and I'd love to know for the conscious investor, if you just walk us through, what does that process look like? So the conscious investor might have some smaller assets of their own. Subconscious investor, Like a lot of you, have a single family or a duplex or a quad or something, and you're also invested passively in large. You know commercial real estate investments. You can utilize cost seg and you might not have known that. So can we walk the conscious investor through? What does that process look like?
Speaker 2:Absolutely.
Speaker 2:The first thing we always like to do is obviously just have a conversation, understand what a person's portfolio may look like, but we run a free upfront analysis or estimate to show any property that you've owned or invest in that, what the potential of doing a cost segregation could save you on taxes versus what you're just taking the normal straight line depreciation deduction year.
Speaker 2:Invest in that, what the potential of doing a cost segregation could save you on taxes versus what you're just taking the normal straight line depreciation deduction year after year, which most people do and what most accountants are just aware of. So that's the first step and so that really gives you, you know, first of all, first and foremost, an education, just understanding what is this going to look like and what's the difference between doing this or not doing it, and so that's a very powerful tool. And then the process in terms of getting an actual cost variation study done is an engineer coming to the property and analyzing everything in it and, like I said, breaking down the components of the property and it used to be called, by the way, component depreciation, which makes a lot more sense.
Speaker 1:I didn't know that, yeah, component depreciation, which makes a lot more sense. I didn't know that. Yeah, component depreciation. How interesting.
Speaker 2:Right, like makes so much more sense than cost segregation. Right, because that's exactly what we're doing. We're saying, okay, this depreciates this component on a five-year schedule and this one on a 15, and this one 27. And so that's what we do. No-transcript. The IRS has a ridiculous amount of rules surrounding, so they have this thing called the Cost Irremediation Audit Techniques Guide, which is on the IRS's website. You can check it out if you're interested in learning more, and I highly recommend it for reading, especially if you have insomnia, it's great, that would help you.
Speaker 2:But the truth be told, jokes aside, it's something that, for someone who owns a single family, if the property was purchased for over $200,000, that's where it really starts to make sense, because there is a fee involved that usually minimally costs about $3,000 or $4,000 or so to get a cost duration study done, a full engineering report, etc. 20 to 30% of your property's value that you can take as accelerated depreciation deductions. You start getting like 10 X value when you're you know it's a 200,000 and up. So, yes, this can be done on single family, can be done on multifamily. Any type of property.
Speaker 2:You know we're talking self storage, office, industrial retail. You know, golf course, whatever you name it, car washes, any type of property whatsoever as long as it's not your primary residence. And so we have a lot of investors, a lot of clients that own short-term rentals, airbnbs, and this has become obviously very popular over the past 10 years or so, and it's one of probably I'd say one of the most overlooked asset classes for cost seg, simply because it's an investment property and typically Airbnb's have significantly higher cash flow than a long term rental would, and therefore, because there's more cash flow, there's going to be more tax liability, and so to be able to use a strategy like cost seg to reduce that and so therefore, creating more income with the investment property and also having it be, you know, essentially tax free is, you know, a great kind of combination.
Speaker 1:That's amazing and I have to. Candidly, one of my best friends just came to mind and I'm like she has a couple Airbnbs. I'm like I wonder if she's done that yet. I need to reach out to her. I need to make sure you guys are connected. If she hasn't, this is going to be kids. It will increase the cashflow. That's powerful.
Speaker 2:Yeah, extremely.
Speaker 1:So I'm curious what is it that you know? That you know a lot, but let me ask this question a different way. What are some of the things that you find surprising that most people don't know about cost seg or an assumption that they erroneously make that could lead to some problems.
Speaker 2:I come across a lot, believe it or not, and not just from you know, people who happen to own properties, but even from accountants who are supposedly supposed to be in your best interests, looking out for your best interest in terms of your taxes. Well, unfortunately they're. They're not always. You know, many accountants are just you know, I hate to say this but just kind of pencil pushers, you know, looking at punching numbers and filling out forms, which which is great and uh, but they're not necessarily tax strategists and looking out to be proactive, to see what other types of deductions, what other strategies you can use. And but in terms of going back to your question about misconceptions or about things people just are unaware of, one thing is probably one of the biggest is that people think you have to do the cost seg in the first year of you buy a property, and it's simply not the case.
Speaker 2:If you own a property for a number of years, as long as it's profitable and it meets the criteria, then you can go back and actually, without even having to amend previous year's tax returns, you can go back and catch up your missed depreciation. So if you own a property for a few years and never knew about cost seg. You can go back. Now it does. Once you've owned a property for, let's say, 10 years or more, you've already taken so much depreciation that there's not much left with to accelerate. So it just, practically speaking, doesn't always make sense at that point. But if you own a property for less than that, it's worthwhile to look, you know, to actually, you know, get an estimate and see does it make sense, is it going to benefit? So that's one of the biggest ones.
Speaker 1:Is there any area of kind of like the gotcha that happens to you know people using cost seg?
Speaker 2:Oh yeah, there are, and unfortunately this comes about by people talking about cost seg without providing all the details right of what, what happens you know, for example, or who this can benefit the most, etc.
Speaker 2:So there are couple of things I want to point out here which don't get talked about enough. The first one is what's called the real estate professional status, and this is essentially means that if you are not a full-time real estate professional okay, which means either you or your spouse, either one of you is not full-time as a you know, realtor or investor, operator, etc then the benefits of cost seg and depreciation in general are limited to only offset your passive, or what the irs deems passive, rental property income. Okay, there's a few other types of passive income, but it's not stocks, by the way, in case you're wondering, his stocks is not considered passive in the irs size, um, for this perspective. And so that's a huge thing, because a lot of people think, oh, I'm going to buy an investment property and I've heard literally I've heard gurus on the internet, you know, on TikTok or whatever not TikTok, because I don't watch TikTok, but you know what I mean. Like Instagram, you see the things.
Speaker 1:That's made on Instagram.
Speaker 2:And they're talking about oh yeah, buy a property and then you won't ever pay taxes again. Well, unfortunately, if you're not a real estate professional, you can only use those deductions from cost seg to offset your passive income from your rental properties, or passive gain which comes on from the sale of a rental property as well. There are a couple exceptions to that rule, now. Obviously the first and foremost, if you're a real estate professional or your spouse, is you can use it freely, meaning you can use it to offset your active or your W-2 or any other source of income whatsoever, and that is probably why cost seg has been so powerful. Now, don't get me wrong Offsetting your passive income by itself is, in of itself, a huge benefit. I mean, think about any other type of investment out there that you can put, you know, put money in, get returns on that and actually not pay taxes on that either. Okay, so, yes, there's oil and gas is similar to that, but there are very, you know, almost no other investment vehicles that you can, essentially, during the whole period of the property you know, get a tax free income from it. So that's, that's first and foremost. So it's still beneficial regardless.
Speaker 2:The second thing I want to bring up which also doesn't get talked about a lot and maybe a little confusing for a lot of people, but it's something called depreciation, recapture, and it sounds scary, but it's not, because recapture doesn't mean what it sounds like, similar to depreciation, right? I like to throw this out there, because depreciation is not negative. It sounds like a negative thing. It's literally a borrowed term. It just means it's the name of the tax deduction, as if your property was going down in value. It's not so. Recapture tax is the name of a tax. When you sell a property, you're going to be subject to this tax. That says any amount of depreciation taken to this tax. That says any amount of depreciation taken you're now going to be taxed on upon the sale. The good news is good news, right, because it's important to understand how this works and most people don't.
Speaker 2:And I think part of the gotcha you asked about, like the gotcha, is that the gotcha is. People think it's a gotcha, but in many cases it's not. So people talk about you going like bigger pockets and they say you, you never do a cost sake because, recapture, you're going to pay it all back when you sell. And that's not true. Simply put, it doesn't mean you're paying it back, means you're subject to a tax on the amount you took. But there are many ways to either defer or further reduce or offset that recapture tax on the sale, and so it just. I don't need to necessarily get into all those different ways to do that, but have a conversation with your tax advisor and see if there are ways to reduce that or defer it further out. Because that's what real good tax planning is all about is figuring out ways to defer, deduct and figure out ways to not pay taxes this year Because, like you said, in the future taxes might be higher. But what can I do today to help me save money on taxes?
Speaker 1:I feel like there's just a massive mic drop, like all the mics just dropped right there. Boom, and that was. You completely read my mind and even went further than that. But with the whole, you know, recapture, it doesn't get talked about when it's spoken about. It's spoken about in such a convoluted way where it does. So often it's like, oh no, that's the enemy, You're not going to make anything, it's going to be terrible. And it's how about we just get the facts and find out actually how this works? Because clearly, strong investors utilize a strategy all the time and this is what grows their investment portfolio by leaps and bounds, because they understand and they work with their tax strategist, they work with a great company like Madison Spex and then they are able to get ahead. It's so important. Okay, Are there other elements that you wish everyone knew about? Cost seg, that it's like. This is the like. No, you really need to understand this. If you could double down on anything, what would that be?
Speaker 2:One thing I want to bring up. I mentioned, kind of in passing, short-term rentals. There is and this is for a lot of those people out there who may be who you know, the conscious investor, who may have a high income and is not necessarily a real estate professional but wants to maximize their tax benefits as much as possible there's something called the short-term rental loophole, and it's not really a loophole because it's actually written in the tax code, but we call it that because maybe the law was written not in the same way, potentially, that it's being used today, because Airbnbs didn't really exist 20 years ago when the law was written. But essentially this says that if you self-manage a short-term rental and the average stay is less than seven days and you materially participate and you're actually self-managing it and there are a couple rules there, but regardless you're actually able to use cost seg to offset your active income. I'm just going to repeat that because it's very powerful. You're making a lot of money. Maybe you have a W-2 high earning and you're getting hit hard with taxes and looking for ways to reduce your tax burden and you're like, okay, real estate is great and this cost sink thing is great. And then you find out. Well, I'm not a real estate professional, so I'm really limited. It can offset my W-2 income.
Speaker 2:Comes along this thing called the short term rental. If I go out and buy an Airbnb and then do a cost, sink it and I, you know, materially participate in self-managing it, which may seem daunting at first. But I'll be honest with you, after speaking with hundreds of people who were not real estate investors beforehand, that did this and are doing this, it's really not that hard. Now you have to want to do it. Okay, it has to be something that you want to run. You know an Airbnb business and it may take some time setting up and getting the right systems in place. But back to the point here. After that tangent, once you've done that, the deductions from cost seg become active deductions, which means you can then offset your W-2 income. Now that's huge. That, to me, has literally hundreds of people that I know that have done this and still working full-time and are able to pay little to no taxes because of one or two or three or whatever Airbnbs that they rent out and are literally paying no taxes.
Speaker 1:I know people who that is their jam. They love their careers and they have a couple of short-term rentals. Because I can have that short-term rental and offset my active income and I can manage this, this is fine. Yeah, it's powerful. And maybe that's why we see such a surge. I have been curious about this for the last few years. Is this why so many people are going into you know, the short-term rental space, you know, and why it's flooded?
Speaker 2:It's. You know, I would say that there is a that is a factor. I don't know if it's the only one, but you know I'm friends with Avery Carl, who runs the short-term shop, and she's authored a book on bigger pockets called Short-Term Rental Long-Term we. She's authored a book on bigger pockets called short-term rental long-term wealth, and she runs she, you know she's a huge real estate investor herself, but she runs the largest short-term rental brokerage in the country in out of Tennessee.
Speaker 2:It's called the short-term shop and cost seg, and I'm in their Facebook group and everything, and cost seg is huge in that group, like everyone, and it's a push because it is true that you can use it, and there, if you're not a real estate professional, there are not really a lot of ways that you can offset your, your income, and so this is a legitimate way to do so, and so, yeah, I think it's certainly a factor I don't know how big of a factor. Obviously there's a lot of other things involved too, and I mentioned earlier. Also it's a great cash flow tool, because Airbnbs can make three to five times the amount of cash flow that a long-term rental would. So why not?
Speaker 1:Yeah, yeah. It's interesting that the short-term rental space is definitely an interesting space, not my personal jam, but I have lots of friends who that's their jam and I say good for you. It's not the type of work I personally want to do, and that's why it's really important to know what is it you want to do, what's in your lane that brings you joy, that allows you to sleep at night, and it's different for every single person, and so, again, I'll high five all my my short-term rental friends.
Speaker 2:For sure, but a lot you know. A lot of times you don't even know what that is until you try right, or until you, uh, you know, test out different things and, like I tried fixing flips for you know before you know, before I got involved in the costing thing and I hated it. That was like right what everyone has to figure out what they, you know what they like, what they don't like.
Speaker 1:Ah, I love that, yona. It's always a delight to share space with you and I appreciate just the simplicity which you communicate with your educators. Hearts, you know, now serves people, what has been for years, but it really just keeps things simple and clear and easy to understand and I really appreciate that. I know conscious investor this has. There's a lot of information in here that is going to resonate with you, or I know you know someone where this is going to be a game changer for them, and so I want to encourage you to.
Speaker 1:One, make sure you go. We're going to do three things. One, make sure you go follow. Y're going to do three things. One, make sure you go follow Yona over on LinkedIn. Okay, like that's a must. Go do that. And then, two, please share this episode with that friend that comes to mind that is caring, and you have friends that are investing in different ways, that don't know they can do this, so just pass this along to them, okay, know they can do this, so just pass this along to them, okay. And then, three, you want to make sure that you, yona, where should we send them Aside from LinkedIn? You want to just send them to LinkedIn.
Speaker 2:You can send them to LinkedIn, you can go to yonawisecom and you can find out more about whatever else I'm doing today as well. I do want to make one slight correction not correction addition to what you said about go over to LinkedIn and follow me. Do not go to LinkedIn and follow me. Go to LinkedIn and hit the connect button and add a note. Take 10 seconds Instead of hitting that follow. It's so easy. Just okay, I'm going to follow this person, follow this person, follow, follow, follow. You follow thousands of people on social media and you never actually get to know them. Well, guess what? I want to get to know you. Right? I want to be part of this community. If you're a friend of Julie's, you're obviously a friend of mine as well. And hit that connect button, add a short note doesn't take more than 10 seconds and say you listened to me, you heard me on Julie's podcast. That would be great.
Speaker 1:Please do that and, yes, connect. I know better. I'm like I was not using my appropriate terms and I'm glad you were able to get us on the right track there and I know conscious of us, or you can feel Yona's heart. This is why I had him on the show. This is why he's just a wonderful human that is there for you. He advocates for people and supports people, and you definitely want to make sure that you're connected with Yonah and, you know, just follow along and engage in all of his posts, because they're so much fun and the type of people that are attracted to Yonah are the type of people that you will want to be around as well. I am certain of that. Yonona, thank you again for your time in coming here and just pouring into us today.
Speaker 2:Well, I appreciate you for having me back and really grateful to you and everything you do for the community.
Speaker 1:Thank you so much. Conscious Investor, remember, adventure belongs on the trail, not in your investing and not in your personal life. So make sure you reach out. If you want to learn more about investing, head over to 3keysinvestmentscom. If you want to learn more about coaching or investing, it's all housed at IamAConsciousInvestorcom. Yeah, that's an affirmation, Remember, because conscious is tricky to spell. It just is so. Type in an affirmation. Remember, because conscious is tricky to spell. It just is so. Type in that affirmation. I am a consciousinvestorcom and you have access to everything and you can connect up with me there. Schedule time for us to chat. Let's not be strangers. Until next time. Cheers to your health, mindset and wealth. Are you enjoying this episode? Are you enjoying this episode? Do the world a favor and help trip the algorithm by leaving a review, so that this content reaches many others.
