Jason Melillo runs KBKG, a firm that does not prepare tax returns. KBKG works with real estate investors and their CPAs on the specialty tax strategies most tax preparers do not run themselves. Cost segregation is the headline service, and the One Big Beautiful Bill just made it more valuable than it has been in years.

100 percent bonus depreciation is back. For a real estate investor with $150,000 of rental income from a million-dollar building, that can mean zero federal tax in year one, with the saved cash flow redeployed into the next acquisition. The strategy that pieces it together looks like this.

What landed in this conversation:

1. What cost segregation actually is. A reverse-engineering of a building's purchase price to identify the portion (typically 10 to 20 percent) that legitimately belongs in 5, 7, or 15-year property class lives instead of the standard 27.5 or 39 year real-property life. Window treatments, decorative lighting, appliances, kitchen cabinetry, certain floor coverings, dedicated wiring, land improvements like pools and irrigation and gates. KBKG's engineers walk the property and price it out. The qualifying short-life dollars then take 100 percent bonus depreciation in year one.
2. Turnaround speed. A study runs under 30 days in the normal queue. KBKG has turned them around in under a week when an investor calls during deadline week (September 15 partnerships, October 15 individuals). Speed, quality, price: pick two.
3. The real estate professional gate. If you (or a spouse) meets the 750-hour-plus and more-than-50-percent-of-working-time tests, the depreciation losses flow against W-2 or other ordinary income. If you do not, the losses sit as passive carryforwards waiting for future rental income. An attorney billing 2,000 hours a year as an attorney needs to log 2,001-plus hours in real estate to qualify, which is the math most people overlook.
4. The cradle-to-grave zero-tax path. Buy a $500K duplex. Cost-seg it. Sell it at $750K, 1031 exchange the gain into a $1.5M property. Cost-seg the step-up. Repeat for 40 years. Hold to death. The heirs get a step-up in basis to fair market value, which means the gains accumulated across the whole investing lifetime never get taxed. Jason has worked with investors who have gone an entire career without paying federal income tax on real estate.

Bonus mention: Opportunity Zones got renewed and slightly expanded under OBBB. For investors who already have built-in gains they want to defer and would prefer to make the next gain entirely tax free on a ten-plus year hold, this is back on the table.

Book Jason runs his firm on: Traction by Gino Wickman. KBKG runs on EOS.

Reach Jason at kbkg.com (use promo code underground2025 for a discount on KBKG's cost segregation tool for smaller properties) or on LinkedIn.

Real Estate Underground with Ed Mathews. Find us wherever you get your podcasts, at clarkst.com/podcast or elevista.com/podcast

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