How Cost Segregation Can Slash Your Tax Bill

Stephen Schmidt (01:31)
Welcome to the show where we interview the nation’s leading real estate entrepreneurs. I got an absolute legend in the house here today and we’re going to have an incredible conversation. If you haven’t joined us before, first of all, where you’ve been at, but if you have, then you already know who it is. It’s Stephen Schmidt, your host. And if you’re joining for the second, third or hundredth time, welcome back. Glad to have you. If you are joining for the first time, we’re also glad to have you. Just

David Wiener (01:31)
you

Thank you.

Stephen Schmidt (01:58)
Keep coming back, keep coming around. I know you’re gonna get a ton of value out of here today. I’ve got David Weiner in the house and David is known as Mr. Cash Flow. He is the CEO of Cash Flow Strategies and is actually a nationally recognized authority on tax benefits for real estate investors. And this is a really cool thing for all of us because it’s something that we are always looking to do is ⁓ continue growing our income and decrease our tax bill. So.

You guys are going to get a ton of value out of this and maybe even see about wanting to give David a call by the end of this show. So just remember before we get started at Investor Fuel, we help real estate providers, real estate entrepreneurs. And I messed my whole intro up. We help real estate investors, service providers and real estate entrepreneurs, 2 to 5X their businesses.

David Wiener (02:43)
You

Stephen Schmidt (02:51)
So that way they can build the businesses they’ve always wanted in order to live the lives they’ve always dreamed of. That’ll never happen again. Hopefully I don’t jinx myself, but that’s what we do at Investor Fuel. And David, with that being said, welcome to the show today.

David Wiener (03:02)
Hey, thanks. I’m glad to be here, Stephen.

Stephen Schmidt (03:05)
Not paying taxes is probably one of my favorite things to not do, interestingly enough. telling you what, man, let’s let’s start here because I have a feeling we’ll end up going a little long on this specific show, which will only do you and I both a good benefit. So if if you could just give us a background on how you got into this business, one of the interesting things is you’re not an active investor yourself, but you’re an absolute

David Wiener (03:09)
You and me both.

Stephen Schmidt (03:35)
Legend in the sheets of saving people you’ve saved people I mean I would I would I don’t know the exact number But I know it’s in the millions if not more than that with eight nine figures on the back end of it ⁓ Over the last however many years you’ve been doing it 35. So what how did you get into this space?

David Wiener (03:51)
Well, it’s kind of a roundabout story. I started out running a medical practice back in the 80s, before you were born. Oh, there you go. OK, in 89, well, I graduated high school in 74. So you can do some quick calculations. Became a consultant mostly to medical and dental practices, helping them out with their cash flow.

Stephen Schmidt (04:00)
I was actually born in 75. I’m totally kidding. Not even within 20 years. ⁓

There you go, well.

for sure.

David Wiener (04:22)
and did that for many years. One of my doctors came to me and he said, hey, I’m buying a standalone bank branch to put my practice in. Is there anything we can do tax wise? Well, I had been familiar with cost segregation, and that was when I first got involved and dipped my toe in. And we did a cost segregation study for the doc and we saved him over $200,000 on his tax.

I was hooked. That was about 14 years ago. Right now I’m one of the top five in the country as far as doing cost segregation studies and cost segregation and tax consulting. I work with a company called CSSI, Cost Segregation Services. They are the nation’s oldest and largest provider of engineering-based cost segregation, which is the only kind of cost segregation you want to consider. We can get into that later, maybe.

and have been doing it for a very long time. And I’d say in tax actual tax savings, I’m probably approaching hundreds of millions of dollars ⁓ that I’ve done for my clients over the years ⁓ from large buildings to very small buildings. You know, a lot of people at once thought you couldn’t do a cost segregation on a property that was less than a million. That’s not true anymore.

Stephen Schmidt (06:25)
Mm-mm.

David Wiener (06:34)
And I can do a cost segregation on a property that has a depreciable basis of about one hundred and fifty thousand dollars or, you know, and up. So even if you’ve got one little duplex or one short term rental, which is even better, ⁓ we can we can handle it. We can save you money and make it worth your while. And so people come to me, I run estimates for them all the time with just a few pieces of information on the property. I can tell you what it would cost.

Stephen Schmidt (06:34)
Sure.

Really.

Hmm.

David Wiener (07:02)
and what your approximate tax benefit would be. And then you decide if it makes sense, know, take it to your CPA, go over it, make sure it makes sense. ⁓ If it does make sense, we can have that study done for you in just a matter of weeks.

Stephen Schmidt (07:17)
Sure. Now let me ask you this question. It’s going to be the most elementary of all questions that you could possibly be asked. But for somebody that’s listening to this, that’s let’s say not aware of what cost segregation is, can you just give a little snippet of actually how a cost segregation works and what it is for somebody that just is like, I’ve heard this thing, but don’t know what it is and don’t know where to start researching that.

David Wiener (07:36)
Absolutely.

So

typically when you buy a piece of property, you depreciate it straight line, not including the land, because land’s not depreciable, but you depreciate it straight line over either twenty seven and a half or thirty nine years. Twenty seven and a half years if it’s rental residential property. Thirty nine years if it’s commercial or short term residential. ⁓ That’s the easy way to do it. And that’s the way most CPAs do it.

cost segregation study basically uses the tax code that says, wait a minute, pieces and parts of that property don’t have to be depreciated over that long. And so we isolate everything that can be depreciated over five years, seven years or 15 years, and then apply the proper actual proper life to it. Well, when you shorten the period of depreciation on stuff, you increase your tax deductions. So that’s great.

And then back in 2017, we were given what we call bonus depreciation. Doesn’t mean you get any additional depreciation, but what it means is all of that shorter life property, five, seven and 15 year property can be taken at the time 100 % in the very first year. That makes a huge tax deduction. Because of the way they had to pass that Tax Cuts and Jobs Act, they had to sunset it.

And so at the end of 2022, for 2023, it went down to 80 % the first year, then 60. Now it’s 40. However, if the big beautiful bill passes, which we’re all 99.9 % sure that it will in one form or another, 100 % bonus depreciation comes back and retroactive to January 20th of 2025. So everybody’s getting pretty excited again about 100 % bonus.

It makes for huge tax deductions. And basically what it does is it just moves your depreciation up so that you get more tax benefit the first year, ⁓ which is when everybody needs the extra cash. And so what we talk about is you take that extra cash that you’re not spending in taxes, use that for your down payment for the next year for another piece of property, do a cost segregation study. I’ve got a guy that I’ve done.

I think 26 properties for now. He does like six a year. He hasn’t paid any taxes in years and doesn’t intend to pay any taxes going forward if he keeps doing this, you ⁓ So the strategy behind it is phenomenal.

Stephen Schmidt (10:53)
Do you let me ask you this so for somebody that you know, we’re sitting here at the end of q2 essentially, right mid-june ⁓ We’ve got six months until Until the year’s over and then tax time becomes, you know, it’s time to file right ⁓

David Wiener (11:01)
Right?

Stephen Schmidt (11:11)
So what should somebody be doing right now in the middle of the year if they’ve not done anything in the last six months to be preparing for I really need to have my stuff buttoned up. I need to go buy a new property, a cut like because I’m assuming this isn’t just a fast McDonald’s turnaround where you where you place an order and you get your burger in five minutes. Right. So like what should people be doing now to prepare?

David Wiener (11:33)
Right. It’s quicker than you might think.

It’s quicker than you might think. We require a personal site visit to every property. And that’s another important thing. Don’t do a cost segregation study where they don’t do an actual site visit. ⁓ The IRS audit guide for cost segregation says that it must entirely be done by an independent third party. If they tell you to take certain pictures, number one,

Stephen Schmidt (11:43)
Mm-hmm.

Hmm.

David Wiener (12:01)
You don’t know exactly what they’re looking for, so you don’t know what pictures to take. Number two, you’re not a third, an independent third party. You could get in trouble in an audit. So we send somebody to the property to take actual pictures. If you’ve bought a property in 2025 and it’s in service, do your cost segregation study right away. And we can do more than just this year. We can go back up to 15 years. So if you’ve purchased property,

Stephen Schmidt (12:08)
Mmm. No kidding.

David Wiener (12:29)
in the last 15 years or built property in the last 15 years and you’ve not done a cost segregation study, you can still do it. We can do look back studies and make it as if you had done it from the very beginning. If you’re planning on buying property, ⁓ there’s a couple of different ways to attack it. We can’t really start the study until the property is in service.

So we use an in-service date for a long-term rental. That’s the date that you advertise it for rent. For a short-term rental, the IRS is a little stickier about that. They want to see a couple of bookings in the year to make sure you’re really doing it as a short-term rental. But ⁓ as soon as you have it where you know what your expenses are, even before you have it in service, you can run the the have the study done.

once any capital improvements are completed and whatever, so we can look at those. ⁓ Because if you pay estimated taxes, which a lot do and a lot don’t, ⁓ you can actually recalculate your estimated taxes long before you file your taxes once you have the results of the cost segregation study and pay less estimated. So it can benefit you right away, even before you file your taxes. ⁓

It doesn’t have to be done by the end of the year. It has to be done before you file your taxes. So somebody could come to me in March of 2026 and say, I bought a property in 25. I didn’t do a cost segregation study. Can we get it done? Absolutely. And they can always file an extension. And then you’ve got till September, October to do a cost segregation study on that property.

Stephen Schmidt (14:07)
Hmm.

Right.

Hmm. What are some of the intricacies? Cause I know like you mentioned with short-term rentals, that’s actually something I didn’t know cause I don’t play in that space, but short-term rentals can be treated, I guess, based off the tax code for the record. I’m not a CPA check with your CPA, but what I was told by a CPA was that

the short-term space in that portion, like they’re treated under the tax code like as hotels or whatever, so that means you can do a cost set on them versus a long-term rental. Could you verify that?

David Wiener (14:45)
Well, you can do a cost seg

on a long-term rental as well. I do them every day. The difference is they have what they call the short-term rental loophole. It’s not really a loophole. It’s in the tax code. You’re not cheating anybody. But the way that it works is real estate is always assumed to be passive. Passive income, passive expenses.

Stephen Schmidt (14:49)
Okay, sure. Sure.

Right.

Sure.

David Wiener (15:51)
If you do a long-term rental in order to use it as active rent active and apply it against your total income, you must do two things. You must qualify as a real estate professional through the IRS, which means 50 % of your work hours and over 750 hours in the year are spent on real estate business and transactions. And then you must be materially involved with your property.

So if you can meet both of those, then any rental is considered active and you can use it against your total income. If you have a short-term rental, you don’t have to be a real estate professional. You only have to be materially involved in your property and you can use the deductions against your W-2 income, which is a huge deal for a lot of people who own short-term rentals because they aren’t real estate professionals and they do have W-2 income that they’d like to offset.

So that’s the difference really other than a short-term rental is depreciated like a commercial property at 39 years. Other residential properties are depreciated at 27 and a half. Where they came up with 27 and a half years, I have no idea, but that’s our tax code for you. But that’s really the only difference. And both of them are great for cost segregation.

Stephen Schmidt (17:04)
Right.

Okay, sweet. So, and that’s what I was trying to allude to ⁓ in that question. that’s great. Because ultimately to your point as well, somebody that let’s say goes out and they make, let’s say they’re a really, really well-engrained lawyer 10 years into their career, they’re making half a million bucks a year and they want to offset that income, but they’re being a lawyer 60, 70 hours a week. Like short-term rentals are the perfect option for them to an extent in terms of their tax liability.

David Wiener (17:37)
it

is or if they can talk their spouse into becoming a real estate professional and they file jointly, it applies. So but I have a lot of professional people, doctors, lawyers, et cetera, that have short term rentals and do them all the time to offset their W-2 income from the practice. ⁓ You know, and should the practice buy a piece of property, then we can actually, as long as the ownership is the same. So

Stephen Schmidt (17:42)
Right.

Totally.

David Wiener (18:07)
in the case of the dentist that I told you about that bought the bank branch, he put the property in an LLC, but he had his practice as another entity and he did it for protection and all that kind of stuff. But if the ownership is exactly the same and the purposes are exactly the same, you can combine those two entities for tax purposes. That’s the fact that a lot of tax attorneys and tax accountants don’t know. You can combine them for

for tax purposes and so he was able to use all the deductions from his building against his practice income, which that’s why it saved him as much money as it did.

Stephen Schmidt (18:50)
Once you’re

David Wiener (18:50)
And the other things,

you know, the other things that we do for non-residential property, obviously, cost segregation is great, but we can also get them what’s called the 179D deduction, which is ⁓ the energy efficient commercial buildings tax deduction, which a lot are unaware of. ⁓ And so I just did a property here, a commercial property.

We did the cost segregation study and I said, what about the 179 D? And he said, what’s that? the CPA said, what’s that? And we saved him an additional like twenty thousand dollars. Just because his building. The energy efficiency is is relative. And so your building has to beat a standard building by in energy efficient ways, you know, building envelope, heating and air plumbing.

⁓ But the standard that they use is rather old. And so most new buildings will meet the qualifications to get that deduction. So that’s more for larger buildings, anything over 40,000 square feet. It’s significant.

Stephen Schmidt (20:00)
Mm-mm.

What’s been your…

What’s been your favorite deal you’ve done with somebody?

David Wiener (20:16)
⁓ Probably. There’s so many of them. The one where the doctor saved so much is because he was a friend and I had worked with him in his his dental practice. And so that was important. I got a call from a flight school at the Henderson Airport in Las Vegas. And the guy said, yeah, I got this property, but I don’t think I’m going to do a cost segregation on it. I don’t think it’s worth it.

And I said, why? And he said, I got quotes in there like ridiculously high. And I just can’t afford to do that. So I said, let me run an estimate for you. Let’s see what we can figure out. So he sent me all the information. We did the estimate. We we estimated that we were going to save him a million dollars in taxes. And and our cost was not even

two thirds of what the other quotes he got. So he said, OK, yeah, let’s do it. Well, we did it. And our estimate was way off. And I called him and I said, man, we really missed it on the estimate. And he said, why? And I said, well, you know how we told you we were going to save you a million? We actually saved you over two million. And so that’s one of my favorite ones, because, you know, I

Stephen Schmidt (21:21)
Ha ha!

David Wiener (21:45)
spent a lot of time in Las Vegas teaching. I go to visit brokerages and work with a big CPA firm there and all of that as referral partners and have done some great commercial properties and done some all kinds of residential properties. And then I go and teach the real estate agents how to be more effective as an agent by introducing people to me and getting cost segregation for them. And I go back every year. It’s like my second home now.

Which if you’re have a second home, that’s kind of a cool second home to have.

Stephen Schmidt (22:16)
Yeah, no

kidding. For sure. Cool place to have it.

David Wiener (22:19)
Yeah.

Stephen Schmidt (22:21)
Now where is Main Home for you? I didn’t ask that before the show.

David Wiener (22:23)
I

live just north of Atlanta in Canton, Georgia, but nobody knows where Canton is.

Stephen Schmidt (22:26)
Okay, cool. Yeah, absolutely. Okay. What did say?

I happen to because we have friends in the Alpharetta area but ⁓ so yeah yeah no I know exactly where you’re at that’s cool we might have to connect when we I’ll be out there for Thanksgiving this year we might have to we might have to get together have a cigar or something sure right right

David Wiener (22:36)
Okay, yeah, that’s close.

That’d be a lot of fun. Yeah. But I work nationally. We’ve even done some properties.

We’ve even done some properties that were outside the country. As long as as long as the person who owns them pays US taxes on the money, we can do a study on it. So, yeah, I had one. I had one study. This is not out of the country, but it was up in Alaska. The guy had contacted me like in October.

Stephen Schmidt (22:54)
Really?

No kidding. Wow.

David Wiener (23:15)
And we did the estimate for him and he said, Yeah, I want to move forward, but we have to have that site visit done by the end of the month. And I said, OK, why? And he said, Well, the only way to get to this property is by boat. And after the end of this month, it’s going to be frozen over until the spring. So I said, OK, well, let’s do it. We got it scheduled and we got it done. And. I’d love to see that short term. That was a short term rental.

I would love to see that place.

Stephen Schmidt (23:44)
No kidding.

Wow. Gotta pull an ice breaker out just to get to it. What the heck? what are some misconceptions about your portion of the industry that you, that just, you know, they just like make you grind your gears. You know what I mean? What are some of like, like give me a Mount Rushmore, you know, if you can be quick, you know. ⁓

David Wiener (23:57)
⁓ there are so many.

⁓ There’s a bunch of them.

One, people say, my CPA will do it for me. The CPAs can’t do it. They’re not engineers. They call people like me. ⁓ People say, I can’t do it because I didn’t buy the property this year, or I can’t do it because it’s not commercial, or I can’t do it because it’s too small. ⁓ None of those are true necessarily, but if you call me, I’ll, you know, we’ll…

look at the numbers and I’ll tell you if it’s too small. ⁓ Probably probably the the toughest is is people who say, well, I can get a cost segregation study for for a lot cheaper. Yeah, I’ve seen that. I got a call from one of my clients down in Florida and he said, I just heard from a friend of mine and he said he got six cost segregation studies done for like

A thousand dollars each. And I said, he did the online do it yourself cost segregation, didn’t he? And he said, yeah. And I said, that’s not that’s not a good thing. I got a call later from the same guy and he said, my friend just got hammered by the IRS on those. They audited him. His penalties and interest are far more than he would have paid you to do a proper study.

You can get them cheap, but you get what you pay for. An engineering-based study is the most accurate. It’s the only method that the IRS prefers and recommends. And our history is we’ve done over 50,000 studies, well over 50,000 studies by now. We have never once triggered an audit. But should a client be audited about something else in the study called into question, which happens a handful of times.

Stephen Schmidt (25:35)
Mm-mm.

David Wiener (25:59)
We will defend it at no charge to them for as long as it takes. And we’ve never had a change with the IRS. So if you want peace of mind and you want bulletproof, we’re not the most expensive either. But we’re definitely not the cheapest you can get. So.

Stephen Schmidt (26:14)
Yeah.

Sure. Who’s

the highest profile person you’ve worked with that you didn’t sign into DA, you wouldn’t say that you worked with them?

David Wiener (26:26)
no, I can say that I worked with him. I I was speaking at a real estate brokerage brokerage in Las Vegas, and one of the agents came up to me after and he said, I know a guy who owns a bunch of rentals, but you’d have to deal through his CPA. Is that OK? And I said, yeah, OK, you know, no problem. So I got the number of his CPA and I talked to her and it just seemed a little weird. thought maybe the guy was a hermit or something, you know, and.

Stephen Schmidt (26:28)
Okay.

David Wiener (26:56)
So we got everything arranged and I said, ⁓ can I talk to this guy? I mean, she said, ⁓ sure. And she gave me his name and she gave me his number. Really nice guy, very not definitely not a hermit. Well, I found out why he doesn’t generally talk to people. This is a guy who has a show on MTV. He and he was a former BMX biker.

Stephen Schmidt (27:22)
No kidding.

David Wiener (27:27)
professional BMX biker and and has a show called The Challenge. It’s been on for many, many, many seasons, still on. The last time I went to Vegas, the last few times I went to Vegas, he and I got together for lunch. And what an incredible guy. And I told him that my grandson was a big fan of BMX biking and knew who he was. And would he send him an autographed picture?

And he said, I’ll do one better than that. Give me your phone. And he FaceTimed with my grandson for about 15 minutes. And so, yeah, he was ⁓ he’s one of my very favorite clients.

Stephen Schmidt (28:02)
was super cool.

That’s super cool. What a great story too.

David Wiener (28:12)
and I wound up doing 16

properties for him, so.

Stephen Schmidt (28:15)
Yeah, no kidding. Wow, that’s awesome. Well, David, we’re kind of coming up on our time here, but I’m sure some of these fine folks are going to want to connect with you, learn more about what you got going on and what you’re working on. Where can they go for that? What’s the best place for them to start?

David Wiener (28:27)
Thank

best place for them to start is to just call me. My number is 770-224-8504. Call me or text me and I will send you some information. I can send you the information that I need to run a free estimate or I’m happy to do a call with you if you want more information on it. I’m all over social media.

My YouTube channel has a lot of videos on cost segregation and all the rest of them. It’s the name of my company all run together. So Costs or Cash Flow Strategies, Inc. is the name of my YouTube channel. And there’s tons and tons of videos and stuff on there. But I’d be more than happy to have them just give me a call.

Stephen Schmidt (29:16)
There you go, folks. Well, go show them some love from the real estate pros and Investor Fuel. And David, thanks for being here. We appreciate it a ton.

David Wiener (29:23)
They show me a little love. I’ll show them a whole lot of money. Good trade.

Stephen Schmidt (29:26)
You bet, love that. Show him some love, he’ll show

you a whole lot of money. That’s a great trade. Well, thanks for listening, y’all. If you got as much value out of it as I did, I know you’re going to be off with the races and we’ll see you in the next episode. Thanks again, David.

David Wiener (29:38)
Thank you, Stephen.