A thread on how real estate investors, developers and operators can make millions a year and pay almost nothing in TAXES by using depreciation, bonus depreciation, and 1031 exchanges.
How it works:
It makes 30% of our cashflow tax free.
Very powerful but there is much more to it...
We'll have a cost segregation study done to split up the depreciable lifespan of different parts of the building. The raw land can't be depreciated so you have to give that a value.
The IRS has a depreciation schedule for each type. Some parts are 5 yrs. Others 15 years...
Now you can get 5 or 6% of the value as a deduction in the early years...
But wait... theres more.
So the doors, sidewalks, HVAC, walls, latches, curbs, security, gates, etc.
A % of this stuff goes in Yr 1
But then Trump got elected and he enacted the Tax Cuts and Jobs act. Moving this percentage to 100% from 2017 to 2023
So now 30% of your asset cost can be DEPRECIATED IN THE FIRST YEAR.
The cost segregation study came back. 30% of the asset cost can be depreciated on a 15 yr or faster timeframe. This is 100% deductible THIS YEAR...
https://t.co/FEt1sBoSWS
A $900k tax deduction. In year 1.
The facility will produce about $260k in NOI and $200k in free cashflow after interest expense.
So while $200k goes into the bank account the tax LOSS is $700k.
But wait there is more...
You can also carry these losses forward into eternity.
On these new properties we won't have a tax liability for 4+ years because of Bonus Depreciation...
INSANITY.
This is how real estate owners, operators, developers make millions a year and pay 0 taxes.
But if you've owned it longer than 12 months its taxed at capital gains...
And you can do whats called a "like-kind exchange" (1031 exchange) which allows you to use the proceeds to buy a new asset and shield the taxes and push them further down the line.
Powerful stuff.
You can even cost seg your vacation homes or small rental properties and its often very cost-effective.
Thanks for following along!
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1/ Here’s a list of conversational frameworks I’ve picked up that have been helpful.
Please add your own.
2/ The Magic Question: "What would need to be true for you
3/ On evaluating where someone’s head is at regarding a topic they are being wishy-washy about or delaying.
“Gun to the head—what would you decide now?”
“Fast forward 6 months after your sabbatical--how would you decide: what criteria is most important to you?”
4/ Other Q’s re: decisions:
“Putting aside a list of pros/cons, what’s the *one* reason you’re doing this?” “Why is that the most important reason?”
“What’s end-game here?”
“What does success look like in a world where you pick that path?”
5/ When listening, after empathizing, and wanting to help them make their own decisions without imposing your world view:
“What would the best version of yourself do”?
Please add your own.
2/ The Magic Question: "What would need to be true for you
1/\u201cWhat would need to be true for you to\u2026.X\u201d
— Erik Torenberg (@eriktorenberg) December 4, 2018
Why is this the most powerful question you can ask when attempting to reach an agreement with another human being or organization?
A thread, co-written by @deanmbrody: https://t.co/Yo6jHbSit9
3/ On evaluating where someone’s head is at regarding a topic they are being wishy-washy about or delaying.
“Gun to the head—what would you decide now?”
“Fast forward 6 months after your sabbatical--how would you decide: what criteria is most important to you?”
4/ Other Q’s re: decisions:
“Putting aside a list of pros/cons, what’s the *one* reason you’re doing this?” “Why is that the most important reason?”
“What’s end-game here?”
“What does success look like in a world where you pick that path?”
5/ When listening, after empathizing, and wanting to help them make their own decisions without imposing your world view:
“What would the best version of yourself do”?
1/x Fort Detrick History
Mr. Patrick, one of the chief scientists at the Army Biological Warfare Laboratories at Fort Detrick in Frederick, Md., held five classified US patents for the process of weaponizing anthrax.
2/x
Under Mr. Patrick’s direction, scientists at Fort Detrick developed a tularemia agent that, if disseminated by airplane, could cause casualties & sickness over 1000s mi². In a 10,000 mi² range, it had 90% casualty rate & 50% fatality rate
3/x His team explored Q fever, plague, & Venezuelan equine encephalitis, testing more than 20 anthrax strains to discern most lethal variety. Fort Detrick scientists used aerosol spray systems inside fountain pens, walking sticks, light bulbs, & even in 1953 Mercury exhaust pipes
4/x After retiring in 1986, Mr. Patrick remained one of the world’s foremost specialists on biological warfare & was a consultant to the CIA, FBI, & US military. He debriefed Soviet defector Ken Alibek, the deputy chief of the Soviet biowarfare program
https://t.co/sHqSaTSqtB
5/x Back in Time
In 1949 the Army created a small team of chemists at "Camp Detrick" called Special Operations Division. Its assignment was to find military uses for toxic bacteria. The coercive use of toxins was a new field, which fascinated Allen Dulles, later head of the CIA
Mr. Patrick, one of the chief scientists at the Army Biological Warfare Laboratories at Fort Detrick in Frederick, Md., held five classified US patents for the process of weaponizing anthrax.
2/x
Under Mr. Patrick’s direction, scientists at Fort Detrick developed a tularemia agent that, if disseminated by airplane, could cause casualties & sickness over 1000s mi². In a 10,000 mi² range, it had 90% casualty rate & 50% fatality rate
3/x His team explored Q fever, plague, & Venezuelan equine encephalitis, testing more than 20 anthrax strains to discern most lethal variety. Fort Detrick scientists used aerosol spray systems inside fountain pens, walking sticks, light bulbs, & even in 1953 Mercury exhaust pipes
4/x After retiring in 1986, Mr. Patrick remained one of the world’s foremost specialists on biological warfare & was a consultant to the CIA, FBI, & US military. He debriefed Soviet defector Ken Alibek, the deputy chief of the Soviet biowarfare program
https://t.co/sHqSaTSqtB
5/x Back in Time
In 1949 the Army created a small team of chemists at "Camp Detrick" called Special Operations Division. Its assignment was to find military uses for toxic bacteria. The coercive use of toxins was a new field, which fascinated Allen Dulles, later head of the CIA
