Cost Segregation Made Simple: Unlock Massive Tax Savings in Real Estate | Brian Bigham E20

“Do you enjoy paying taxes? Would you like to learn how to keep more of your hard earned money?

In this episode of The Hotel Investor Playbook, Mike and Nate sit down with Brian Bigham, Vice President at Madison Specs and also known as the Cost Seg Cowboy. Brian breaks down the powerful strategy of cost segregation, showing you how to legally keep more of your hard-earned money by accelerating depreciation on your real estate investments.

Listen in as Brian simplifies complex tax strategies using analogies like the “Pizza Method,” making it easy to understand how you can offset your gains, reduce your tax bill, and strategically plan for future investments. Plus, you’ll learn advanced loopholes that can help you avoid massive tax bills—even when selling a property.

If you’re a real estate investor looking to maximize your tax benefits and keep more cash in your pocket, you won’t want to miss this episode.

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Transcript

Michael Russell 0:00

Do you enjoy paying taxes? I know. Stupid question. But are you paying more in taxes than necessary? Did you know there's a legal strategy that could let you keep thousands, heck, even millions more in your pocket, all by simply understanding how to leverage the tax code? In today's episode of the Hotel Investor Playbook, we're diving deep into the power of cost segregation with none other than Brian Bigham, also known as the Coseg Cowboy. If you're a real estate investor looking to maximize your tax benefits, this episode is going to blow your mind. From breaking down the basics to revealing advanced loopholes that the wealthy use to avoid massive tax bills, Brian's insights could be the game changer you've been waiting for. Want to learn how to legally keep more of your hard-earned money? Let's get into it. Welcome to the Hotel Investor Playbook, your guide to building wealth and freedom through boutique hotel ownership, hosted by Mike and Nate. Get in the game. Brian's spoken at over 50 events in the last five years, and he's helping real estate investors maximize their tax benefits. And today, he's here to break down how cost segregation can help you keep more of your hard-earned money. Brian, welcome to the show. How's it going? It's good. Thank you for having me.

Nathan St Cyr 1:43

Cost seg cowboy. I love that. Let's go.

Michael Russell 1:46

For those who are new to the concept, can you explain in simple terms what cost segregation is and why it's such a powerful tool for real estate investors?

Brian Bigham 1:56

I mean, I the first thing you want to ask is, you know, do you enjoy paying taxes? Do you like, you know, giving the government a tip on top of what you've paid them throughout the year? Hell no. When you always hear everything about real estate, how great the returns can be, how much money you can make. I mean, millions upon millions of dollars, thousands upon thousands, but nobody talks about the concept of you're going to have to pay a little bit to the government, to the IRS, based on those returns. And I know you've probably heard the same concept across the board. It's not about how much money you make, it's about how much you keep. Ultimately, it's all about what's called depreciation. So whenever you uh you buy a property, whether it's for you buy a property for a dollar or $10 million, you get what's called a depreciation. And what is depreciation? It's basically a wear and tear associated cost to every physical asset, every physical thing that's on that property based on what you bought it for. And when I say asset, I'm talking about everything from the foundation that the property sits on to the roof that hides it from the rain. Every little physical thing on that property is what's called depreciated or a tax loss write-off based on how much it could be replaced for, wear and tear. Let's use flat numbers. You buy a property for a million dollars, right? You have to take land value out of the equation. So land could be anywhere from 1% of the total value to 50% of the total value. It's all based on county appraisals. But the idea is land is not depreciable. Land is not going to be able to be taken in losses. If a tornado came and knocked the building down, what's left? The land. So what you do is you take your purchase price of a million dollars, you take land out of the equation. Let's say land is worth $100,000. That leaves you $900,000, and that's called your depreciable basis. Now, that depreciable basis, that $900,000, you get that entire amount in losses, in depreciation losses over the course of the next 28 to 39 years. Now, here's the the side that a lot of people are like, well, I'm not gonna I'm not gonna hold that property for longer than like five or six years. Why why can't I get that in the next 20 years? Why can't I get that now? Lo and behold, that's where cost segregation comes in. So cost segregation, it's kind of a terrible name, actually. Let's let's just call it what it really is, accelerated depreciation. Accelerated depreciation is essentially applying the uh you know a loss year for each individual asset. Again, from the foundation, windows, walls, roof, cabinetry, appliances, you name it, you are now associating a time or a wear and tear timeline for those assets. You have to section everything out and put it in its correct life expectancy. The best way to really describe it, again, metaphor guy, I use the pizza method. Have you heard of the how to how to do the pizza method for cost segregation?

Michael Russell 5:09

No, tell us.

Brian Bigham 5:10

Okay. So let's say you have a full supreme pizza. Supreme meaning you have everything from the the cheese, the toppings, you have it's you know, put into a box, it's being delivered to you. It's nice. Now, if I was doing regular depreciation, like we were talking at the very beginning, I would simply take that whole pizza and cut it into exactly 39 even pieces. And then you get one piece per year. That's it. And it has all the toppings on it, don't get me wrong, but it's just 39 even pieces across the board. So, what is cost segregation gonna do? It is going to take all those toppings off, it's gonna take whatever from green onions to peppers, everything off, and leave just the way my my kid loves to eat their pizza: cheese, sauce, and bread. That's it. So when you when you still have that cheese pizza, it's still considered a pizza, right? Even though it's just meat, you know, cheese and bread. But with all those toppings taken off, they're put into their own separate sections. So you have the things that wither faster, like the peppers, the onions, the you know, jalapenos, whatever you put on your supreme pizza, that goes into what's called what we call the five-year bucket, you know, the tangible assets.

Michael Russell 6:27

So when we asked you to explain this to us, like we're five-year-olds, you really are. We're breaking everything down exactly like we're five. Hey, I like this. Let's keep going with this analogy.

Nathan St Cyr 6:36

Bro, this I mean, the visualization that you're creating, and based on my knowledge of cost segregation, I'm so freaking pumped that you're explaining it this way. This is freaking absolute money.

Brian Bigham 6:49

And I'm smiling. You take all those toppings, just the toppings on the pizza, and you put them aside, and they because they weather faster, they they last a lot less. And when I'm talking about, you know, pepperonis and onions and jalapenos, these are things like cabinetry, flooring, baseboards, decorative lighting, everything, like all the things that are added to the property that are not technically structural, more like curb appeal or what you can use to force the appreciation for later. These are things that depreciate over five years. So instead of averaging them out over the next 20, 39 years, you're moving them into years one through five. So you're taking all of those losses years one through five instead of averaged out over the next four years. Now, there's also other sections. And now, for instance, remember it was it was sitting in a box. Now, that box, let's say that's considered your exterior land improvements. If you have dipping sauces, let's say those are pools or or uh you know driveways or you know, sidewalks, everything that's added to the land, but not necessarily part of the building, that actually has a classification of 15-year property, also called exterior land improvements. So instead of meeting for the average over the next 40 years, you move those to years one through 15. So when you're moving all of these things around, you're reclassifying the assets. You are taking them now instead of later. If you were to put regular non-cost segregation for that for the same exact property next to a cost segregation over the next 29, I'm sorry, 28 to 39 years, you're gonna get the exact same amount of depreciation. We're not giving you more or less. We're simply fast forwarding it. We're giving it to you up front. That's going to allow you to apply all those losses to all that income the first five to six or or even up to 10 years, which is what you would like to call a tax-free investment because you have enough losses to offset the gains year over year over year.

Michael Russell 9:01

All right. So I I think I've understood a very simple understanding of what you just described, but I just want to recap and then I want to ask you how this might apply and actually save money. So what you're saying is basically you're just accelerating the depreciation by categorizing things that can be um uh depreciated uh ahead of time rather than waiting over, let's say, 39 years. If you put it into a bucket, let's say for five years, then if there's out of that $900,000, let's say there's $200,000 that can be depreciated in five years, then you can depreciate $40,000 per year instead of having to wait over 39 years. You take $200,000 divided by five years, that's $40,000 of depreciation per year for that specific asset class or that type of whatever you're depreciating, right? So that's the first part. So walk us through then, well, how does that affect someone's tax bill?

Brian Bigham 10:05

Yeah. So now everybody's different. Just remember that. And for right off the bat, people file through LLC, some corporations, some just stole proprietorships, you know, however, it works. The concept is these losses are applied to each person on K1s. That's what they're called in your tax returns. These K1s are essentially showing you the gains from the property and the losses from that property. So with cost segregation, what we're doing is instead of giving you that little piece of the pie of just enough portion to represent whatever the straight line depreciation is, we're giving you cost segregation. It's doubling, tripling, or even quadrupling the amount of losses right up front. And it's going to essentially completely offset the gains that you made from the property for that year. Now, if you have any losses left over, let's say you get a triple the amount of losses, but you only need to use a third of that for you know this year. Well, that two-thirds is with you and it will roll over to the next year. It will just continually roll over and carry forward until you use it because those losses are based on the purchase, the acquisition of the property. They're not based on you know when you're getting rid of the property in the future or no, these losses are yours from when you bought it to offset the gains.

Michael Russell 11:28

Okay, so so to simplify, if we go with that example where I say you can account for in year one, $40,000 worth of depreciation, what you're saying is if you made $40,000 of income from that property, then the losses would completely offset any income taxes that would be owed for that year.

Brian Bigham 11:50

That is correct. And it's these are paper losses. They'll they're going to apply to these gains. And on paper, it's going to show you made zero dollars of income, even though your wallet says different.

Michael Russell 12:02

Hey guys, quick break from the episode. Look, we're always looking to bring you the best content here on the Hotel Investor Playbook. And honestly, we'd love to hear from you. We want to know what you want to learn about. Is there a topic you're dying to hear us dive into? Or maybe you know someone who'd be an awesome guest, someone with a great story, unique expertise, or insights that would bring value to all of us in the hotel investing game. Shoot us an email at info at hotelinvestorplaybook.com. That's info at hotelinvestorplaybook.com. Let us know. We read every single message, and honestly, it would make our day to hear from you. Your feedback helps us make this podcast better and more relevant for you. So don't be shy, reach out and help shape the next episodes. All right, back to the show. Okay, I have a pretty good understanding of what you're saying, but I just I want to be clear because it can get a little bit dry when you get into the tax and the weeds and stuff. But back to this kind of pizza example, this basic understanding. Can you help us understand? Okay, are there specific property types or investment strategies that that maximize this advantage? I mean, what scenarios do does a cost segregation study really provide the most benefit?

Brian Bigham 13:11

Oh, yeah. Yeah. You know, the the idea is with these losses, they're given to you based on your ownership percentage. If you're buying a single family house that's that you're turning into a rental, you can take all that depreciation by yourself. You can take all that depreciation and apply it immediately to the gains, to the income made from the rent on that property. Now, it that is what's all I like also like to call icing on the cake because that depreciation does not affect other write-offs, other expenses, other deductions, other expense, you know, all of that is just added on top of this. So you have this massive amount of depreciation to offset the returns, and then all of these write-offs, deductions, losses on the side that are added on top of that to even give you even more losses that you can push to the next year and the year on and so forth. But um, you know, if you are investing in a in a in an LLC, let's say you're doing a what's called a syndication, but where you have multiple investors putting their money into a single bucket and buying a property, you still get the benefit of all of those losses based on your ownership percentage because everybody gets a piece of the pie, no matter how small, it's all based on ownership percentage, and that will ultimately funnel down into your personal income tax return that you file. So it works across the board with every type of property from condos to skyscrapers to ranches, and you can even do golf courses. I mean, it's it's across the board. You can utilize it on everything, it's just about how much of a tip you want to give the IRS when you have to pay them. You don't.

Michael Russell 14:55

So is there a minimum investment that this would make sense for?

Brian Bigham 15:00

Like a minimum investment amount as long as it's over a hundred thousand dollars, the property itself, it makes sense to at least see if this will help you in the long run. And then on the other side, you do also have the opportunity, based on certain categories and classifications, to use these losses to offset your W-2 or active income.

Nathan St Cyr 15:23

So let's assume that I'm an LP or a passive investor into a syndication. And so this is a passive source of income for me. And I receive a depreciable amount through the cost segregation that is greater than the income that I received for that. Okay, so whatever. Let's say I made $20,000 that year, but I have this $40,000 benefit. I've got $20,000 left over. That's a passive invested investment. Does that that $20,000 net now roll into next year's passive investments, or can I use that to offset active income that I have in other areas of my life?

Brian Bigham 16:10

Yeah. Absolutely. So I'm gonna I'm gonna give you that scenario in a broad scope on as let's let's represent it as a passive investor only. So if I'm a passive investor today and I invest into a syndication deal, right, I'm going to, and that that's doing cost segregation, I'm going to get a massive amount of losses distributed to me on my K1 for my tax filing for 20 year. So with those losses, not I can apply them to the gains that I made from this property for this year, which completely offsets it because there's always going to be more losses than there are income the first year. Whatever is left over rolls into 2026. And you start with a map, you know, for your example, a negative $20,000. No matter how well or bad the property does, you have a negative $20,000 on paper. So if I met a classification that's called real estate professional, RE or rep real estate professional status, which there's only two, there's two qualifications you have to meet in order to do it. First one is 750 hours a year, calendar year involving real estate, whether it's education, training, uh, brokerage, closing, trading, whatever. And the next one is 50% or more of your business is involved in real estate. It's not about how much money you make. The IRS should know how much money you make from real estate. It's all about time. So if you meet both of those qualifications, you are considered a real estate professional. When you're considered a real estate professional, you can use these passive real estate losses to apply to W-2, active income, 1099, stock gains, whatever. Everything becomes active. There's no longer passive versus active. So you can use that remaining $20,000 to lower your adjusted gross income down even further, putting you in a much lower tax bracket, or in some cases, a zero tax bracket.

Nathan St Cyr 18:19

Okay, I love it. So simply put, it depends on if you qualify for reps or not. If you it if you'd qualify as a real estate professional, then yes, it can offset active in that year. If not, it's going to roll over into passive for the next year. You start with a bucket of loss, uh, already a bucket of passive loss. So it'll continue to help you as time goes on.

Brian Bigham 18:43

That's correct. Okay. And and uh just for the record, it's literally to qualify, there's a box on your tax return that your CPA checks. That's it. That makes it. I'm not saying like go harass your CPA. I'm just saying that's all that's all it takes. There's not a lot of forms, they're not like a certification process. You just have to meet those qualifications and have your CPA check that box.

Nathan St Cyr 19:07

Understood. Now, the next question on this is okay, but what if I have a bunch of other losses, right? Like let's say I have a bunch of other active losses. Then what happens? Yep. So so let's say I don't even, I had done this cost segregation. I've got, you know, all of this depreciation sitting there. Do they use the cost segregation losses first, or can I can I determine that? Can I go use my other active losses first and then whatever is left over, roll over from the cost segregation?

Brian Bigham 19:42

So it's always recommended to use the write-offs, expenses, deductions first that you have on the on the other side. As, you know, depending on your classification, depreciation is the bread and butter of taking care of the gains that you and the income that you make from the property. Property from the rents, you know, from the rubs, from everything that's included in making money off of your rental property. Understood.

Michael Russell 20:07

I want to ask when would it not make sense to perform a cost segregation study? Are there certain scenarios or situations where it just doesn't make sense?

Brian Bigham 20:16

For sure, for sure. So if you guys are doing, you know, let's call it a fix and flip method or a wholesale property method, don't do cost segregation. Mainly because you don't want to fall in that line of taking losses and immediately paying them back within a year. So if you're buying a property and planning on selling it, whether it's renovated or not, in less than 12 months, don't do cost segregation. You don't want to deal with short-term gains versus long-term losses. It's it's a nightmare. And your CPA will thank you for it. The next one being it's if you have a 1031 exchange, they actually have a lower basis to them. Now, I'm not saying don't do cost segregation if you're doing doing on a property that you've exchanged into. But what I'm saying is make sure you take into you know into consideration how low the basis is when you're actually calculating the losses that you're able to that you're getting from it. There that that becomes a numbers game.

Nathan St Cyr 21:15

Like is it worth it or is it because your basis is already lower to start and it goes based off what the purchase price is, there might not be enough actual loss to take to make it worth the cost of the cost segregation.

Brian Bigham 21:30

That's correct. Don't just cost seg everything forever. I mean, 31 exchange does deal with the same concept, the same basis as cost segregation pulls from.

Michael Russell 21:41

All right, so let's talk about timing of a cost-seg study. Does it matter? Like if let's say someone has owned a property for quite a few years, does it still make sense to do a cost-seg study, or is this something that you only do in the beginning?

Brian Bigham 21:52

So cost seg has been around since 1987, meaning that you can go as far back as 1987 to do cost segregation. If this is the first time you've ever heard this and you've owned a property, let's say for 10 years, you can still do cost segregation. What you're simply doing is pulling from the next 20 or 30 years in the future and bringing it back to the current tax filing year that you're doing. And all you have to do is kind of take off the depreciation that you have taken for the last 10 years. So you're you're still being able to push forward and offset gains with the losses, but you just have to take into consideration what you've already taken, so you're not double dipping.

Nathan St Cyr 22:36

Understood. So if you use that original example where you had $900,000 of building cost, and you say, all right, well, for the past 10 years, I've already used a third of that. I've already used 300 grand, you know that that 300 grand is gonna have to be recaptured. So really it's only gonna be on the although it's the whole $900,000 that you're gonna do the cost segregation on, you're gonna have to subtract out that $300,000 you've already taken.

Brian Bigham 23:02

That's correct. And then we would do the cost based on the $600 that's left in the future and bring it forward. Got it. Cool. Now, here's where we're gonna springboard into the next one, which is is now also becoming, again, a big topic. Bonus depreciation.

Michael Russell 23:20

Yeah, what is this? What's bonus depreciation, right? How does it how does it benefit it? How does it amplify a cost seg study?

Brian Bigham 23:27

So bonus depreciation in a nutshell is cost segregation on steroids. So what you're basically doing is with cost segregation, you are reclassifying the assets into their own categories. Five-year property goes years one through five, 15-year one through 15, and then the remainder goes either one through 39 or 27 and a half based on the type of property. Bonus depreciation allows you to take any asset under a 20-year life expectancy, which is all that five year, all that 15 year, and take it and push it into year one. Quite literally, you're instead of getting three times the amount of depreciation losses, you're now getting 10 to 20 percent times the amount of losses year one. So you're moving all of that to year one. Now, here's the kicker. There are timelines and expiration dates for now on bonus depreciation. So you were asking earlier, what if this is, you know, if somebody's owned a property for a long time? If you bought a property and placed it into service between September 2017 until the end of 2022, December 31st, 2022, that five-year window, you can take all of that bonus depreciation, all that five year, 15 year, every bit of it, 100% of it up front, it's yours. You can take it and then whatever's left over, keep rolling it over year over year over year. If it was bought in 2023, from January 1st to December 31st, 2023, the bonus depreciation law, the tax law dropped down 20%. So now you can only take a max of 80% bonus depreciation. And then last year, 2024, it dropped to 60%. Here we are in 2025, it dropped to 40%. Why did they put that expiration dropping 20% in place every year? Well, a lot of people think it was a political ploy. I mean, they wanted to do that during you know, election years, right? The idea is they wanted to boost the economy, boost the real estate world, get more uh more going uh during those years 2017 through 2022. So it really brought the market back up. And what happened? I mean, if you guys noticed 2022, especially massive year. My God, just straight up, and then as soon as bonus depreciation started going down 20%, it plateaued and then it started coming down, and now we're kind of on a downslope a little bit.

Michael Russell 26:06

Well, let me uh can I ask you something though? I want to know. So you've described the benefits of a cost seg study, and now you're throwing in the bonus depreciation as a cost egg on steroids, but let's just assume if bonus depreciation were to drop to zero in the future, would a cost segregation study still be worthwhile?

Brian Bigham 26:25

Absolutely. So remember what I was saying, cost segregation has been around since 87. It will still be around even if bonus depreciation completely goes away. So it's still going to allow you to double or triple or even more the amount of depreciation instead of waiting, you know, for years and years and years, just taking the average amount. It's still beneficial and it still works for syndications, especially because it's all being passed through each individual owner.

Michael Russell 26:56

Uh-huh.

Nathan St Cyr 26:56

Yeah, I got you. So cost segregation standalone, because I think this is where you know everybody's up in arms about bonus depreciation. But cost segregation before that was this beneficial opportunity for investors to offset their gains ahead of time by utilizing this approach without bonus depreciation. But then it's kind of like, all right, you get fed this, this, like you said, the steroids, right? And you're like, okay, now you've become a little dependent on that. And so you're comparing everything to this unique scenario. But cost segregation on its own is an awesome strategy to really offset gains up front. So it's to accelerate that depreciation up front no matter what, get a better tax benefit. And then the bonus depreciation really is that it is a bonus. And so whether you're getting 100%, 80%, 60%, 40%, that percentage really is a bonus. And you said that the bonus is based off of anything that falls in a 20-year category or under. I assume, based on what we've done, is the actually ends up being the bulk of it.

Brian Bigham 28:08

That's correct. So the one, the thing that it does not apply to, which is across the board, whether it's residential or non-residential, is the structural component of the property. So the windows, the walls, the electric, the plumbing, foundation, roof, you know, all the things that make the property actually a structure that's habitable, that's what has to stay consistent and it's not allowed to be in bonus depreciation. Understood. Okay.

Michael Russell 28:40

So what about the future? You know, you've been in this game for a while. What changes do you anticipate is on, you know, that are on the horizon regarding bonus depreciation or other tax incentives that might impact cost segregation strategies?

Brian Bigham 28:54

Well, there's a couple, a couple of them actually, with the you know, new administration, or I'm sorry, new old administration, however you want to look at it. So what was it a day yesterday or the day before yesterday? He got, you know, Donald Trump got back up on and said, hey, we're gonna restart 100% bonus. He's said it. And he's like, we're gonna restart it, we're gonna get get our you know economy back, our real estate's uh world back on track. We're gonna, we're gonna start doing trades again. It's going to lower the Fed, it's gonna lower the interest rates. Everything is gonna be changing for the better. So that was literally a day, day and a half ago. So that's one. The other one is I heard this, I'm not entirely sure if this is possible, but uh you guys have heard about the new tariffs, you know, applying the tariff that from different countries. Well, the idea with doing tariffs across the board with multiple countries was so they would be able to eliminate income tax for Americ for all Americans. Like, well, if he's eliminating income tax, there's no reason to do cost segregation because it helps you take care of that federal income tax on your taxes. So that's a possibility that could affect cost segregation.

Nathan St Cyr 30:11

So then cost segregation would do us no good.

Brian Bigham 30:14

So then cost segregation, I would and I would personally tell you it will do you no good. Because you have multiple set.

Michael Russell 30:20

It just doesn't make any sense. So we don't know exactly, but he's made some claims. Uh I want to shift gears here. I want to talk about how can a cost segregation study impact the future sale of a property, right? So there's depreciation recapture. So I want to know how does that impact investors and how can they strategically plan for this?

Brian Bigham 30:42

Yeah, yeah, absolutely. So if you're everybody is hearing everything that all these losses, offsetting all these gains, essentially being tax-free investments in a sense, it sounds too good to be true. Well, IRS said that too. This is this sounds too good to be true. We got to figure this out. So, what they they did was they put together what's called depreciation recapture. So, depreciation recapture is it's treated just like capital gains. All right. When you go to sell a property, you have to take into consideration the basis as it stands when you sell it, calculated with the total amount sold, whatever that you know that uh that number is in between, you pay a capital gains rate on that, which is tip, I think what is it now, 20%, 20% payback on taxes for the gains. Now, with recapture, it essentially is the same thing, which means you have to base your basis will be lower based on the losses that you took during ownership. So when your basis is lower and you sell it for much higher, you're going to be paying uh what's a depreciation recapture. The downside of depreciation recapture is it's paid at your ordinary income tax rates. It's not 20%, that max 20%. However, this is where the fun begins. But that's a big one. I'm scared. When you just said that, I'm like, oh no, that does not sound good. There, there are there are there are ceilings and maxes, which is actually will work out to your benefit. And this a lot of people don't quite understand. They hear the ordinary income tax rates and they immediately say, No, no, thank you. But I'm going to tell you why it's actually more beneficial to utilize it. Number one, the appreciation recapture is capped. Your ordinary income tax rate could be 37, 45, whatever. It is capped at 25%, meaning it will not be higher than 25% on the recalculated recapture amount. Now, here's the cool thing about it. It is based off of ordinary income tax rates. So let's say, for instance, as a real estate professional, I'm just going to throw a flat, flat example. Real estate professional, you have multiple investments. You are you basically have enough losses to show almost zero income, but you sold this property right here, right? Those gains rates, it's all the recapture. You have enough losses to actually offset all of that, meaning your recapture is zero dollars. You paid zero gains, zero recapture because your tax bracket is zero. Smart. That means that's whole subs. Holy crap. Yes, let's go. Now you want two more loopholes? Here's some here's a fun, fun one to take home.

Nathan St Cyr 33:35

I want to, but I want to stop on that one for a second. And yes, I want the next two loopholes, but I want to stop on that one for a second because that really promotes the continuation of purchasing the next property in that year to then create another, a new significant cost segregation, if there's bonus depreciation, if there's not, what have you, another significant loss, because that's going to help you get to that zero income. So it does keep the it keeps the people that are purchasing flowing. Like as an investor, whether you're a passive investor, as long as you keep going, there's this benefit. There's actually a more significant benefit that that recapture amount gets paid up at your income level. That's freaking money. That is money. Let's go.

Brian Bigham 34:27

All right. So if you are, let's say, a passive only, and this is your only property you've invested in, it went full cycle, start to finish, right? When you go to sell it, you are gonna have gains, and it's gonna be based, or I'm sorry, your recapture gains, which is gonna be based on ordinary income tax rate capped at 25%. I always want to say that over again because a lot of people are like, we said ordinary income tax rates. I didn't hear it the first time. It's capped at 25%, everybody.

Michael Russell 34:53

Yeah.

Brian Bigham 34:54

So the the here's the cool thing about this any losses that you have left over from the very beginning until the very end, any losses left over become activated losses. Meaning they are no longer a you can't have to apply them just to the passive income side, even if you're not a rep, you can activate them and now they can be applied to active income, whether it's the gains on this property, W-2, 1099, whatever, you can actually utilize them as active losses now.

Nathan St Cyr 35:31

And that's huge to have the cost segregation because if you're selling this in year seven, you would have missed out if you would have just done a non-accelerated version. You would have missed out on 20 to 30 years of depreciation. But because you did the cost segregation, those things are sitting there just waiting for this event.

Michael Russell 35:51

Sure. So actually, we've actually done a couple of context studies with you, and look, they've helped us out tremendously. So I want to just um I want to give you an opportunity to plug your business. So if someone's interested in exploring cost segregation further, what's the first step they should take? How can they reach out to you or your company, Madison Specs, for more information?

Brian Bigham 36:16

So, I mean, really, a lot of a lot of people will say just, you know, I'm just gonna go online and research it. Guys, there's so many different things to research out there when it comes to cost segregation, but it's going to be foreign language to you. It it's gonna be nothing but tax codes and identifiers, and it's gonna drive you crazy, and you're not gonna want to do it. Just give me a call or email. You guys want to give my number or you want me to give it? Whatever you want, man. Yeah, share your info. I love doing real estate. I'm also an investor, so I know firsthand how it actually benefits you tremendously on the back end from start to finish to in-between and everything. But uh, my my number is 214-983-0862. Call, text, email. My uh my email is B Big Ham. B-I-G-H-A-M at Madison Specs.com. I love talking to real estate. I'll do I could talk about this all day for you.

Michael Russell 37:13

Yeah, we'll put that in the show notes as well so that people can reference that. Sweet, man. Well, this has been great. Nathan, anything else you want to add before we wrap this up?

Nathan St Cyr 37:21

No, I just want to buy shit and appreciate it.

Brian Bigham 37:26

There's so much more I could again, I could talk about this for days upon days. There's so much more that you have we haven't even touched the surface on. It's amazing how those codes work.

Michael Russell 37:36

Cool, man. Hey, thanks for being on the show. We are Mike and Nate. He is Brian Bigham. This is another episode of the Hotel Investor Playbook, and we will catch you next week. Aloha. Thanks for hanging out with us today on the Hotel Investor Playbook. If you got even one good nugget of wisdom about hotel investing, do us a favor, hit that subscribe button and leave us a five-star review. And hey, if you're feeling extra generous, drop a quick line in the review section. Something like Mike and Nate are the go-to hotel investing guys, or best podcast for anyone looking to crush it in hospitality. Or, you know, whatever feels right. Those little shout-outs go a long way in helping more people find the show. And they pretty much make our day. All right, appreciate you guys. Catch you next time.