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Show Summary
In this episode, Micah Johnson interviews Brian Kiczula about the booming field of cost segregation in real estate. They discuss how recent tax law changes, especially the big, beautiful bill, have increased interest and opportunities in cost segregation for properties under $20 million, including boutique hotels and short-term rentals. Brian shares insights on how investors can leverage cost segregation to maximize depreciation benefits, questions to ask providers, and the importance of strategic property acquisition and renovation planning.
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Investor Fuel Show Transcript:
Brian Kiczula (00:00)
along comes the big, beautiful bill act and it brings back 100 % bonus depreciation. Well, it just kind of.through kerosene on the fire, meaning folks that didn’t know about cost segregation all of a sudden started asking about it.
Micah Johnson (01:47)
Hey everyone. Welcome to the real estate pros podcast. I’m your host, Micah Johnson. And today I’m joined by Brian, who’s been making some serious moves in the cost segregation space for quite some time now. Brian, welcome in man. are you? Absolutely. I’m excited for you to be here too. There’s been someBrian Kiczula (01:58)
Hey, thanks for having me on the podcast today. Excited to be here.Micah Johnson (02:04)
Updates in your world, man. You’re talking about the business is starting to boom, big, beautiful bills having an effect and you know, kind of pay attention to this. So think there’s a lot of value our listeners are going to get today. So let’s dive in, man, for folks who aren’t familiar with you yet. Tell us more about yourself and what your main focus is right now.Brian Kiczula (02:21)
Yeah. So cost segregation is, is what I do. That’s my sole niche, whether you’re residential or commercial investor, I focus on cost segregation primarily on, you know, we’re not going after the super large deals. I’ll leave that to the bigger companies. So if you’ve got a hundred million dollar project or $300 million project, ⁓ not really what I want to focus on, but if you’ve got something, you know, let’s call it $20 million or less. That’s really my sweet spot.⁓ recently it’s been a ton of, ⁓ residential property, ⁓ we’ll call them boutique hotels. So short-term rentals, very large short-term rentals, maybe 10, 20,000 square foot properties that, ⁓ they’re doing, you know, vacation on.
Micah Johnson (03:06)
Gotcha. Gotcha. And take us back, man. What led you to this? How’d you find the niche of a niche of a niche here?Brian Kiczula (03:13)
Yeah. How did you stumble into cost segregation? Because nobody grows up thinking they’re going to be a, cost segregation specialist or switch out their melatonin for IRS publications. ⁓ the reality is I’ve been in, ⁓ you know, mortgages in real estate since the early two thousands got my real estate license back in 2002 brokers license in 2004 primary career was in mortgages, but fast forward to about 2019 had some major health issues.had to stop working for about a year and, you know, scratch my head and say, Hey, I’m going to reinvent myself. And, ⁓ like any person who was trying to focus on a low stress job, I stumbled into tax returns. Initially just didn’t want to do it. I thought it was going to be a good fit, but I just didn’t want to sit down and really, I mean, hate to say it, but I don’t really, I mean, I like people, but I don’t really like sitting down with people and reviewing their returns with them. ⁓
And then I just kind of segued into cost seg because it tied my background, real estate mortgages, analyzing tax returns, knowing all the documents, knowing construction. So it was a perfect segue for me.
Micah Johnson (04:22)
that man, and less people, more numbers. You’re not having to sit down. what’s, it’s interesting about that. I just want to dial in on that for a second. So folks can hear that out there. You might be good at something. However, you can only, money only does it for so long. if you have emotional paycheck isn’t getting paid, pay attention to that. What can you shift to? Because man, they’ll drive yourself nuts doing things that you hate for too long, even if they pay well.So I love the fact that you found that part of it. Okay, I don’t have to ditch it, but here’s that certain section that does it for me. Boom, now I’m in it you have your own business.
Brian Kiczula (05:41)
Well, I tell you rewind a bunch of years ago now, and I was literally one of those guys that was trying to get hired at Lowe’s. I’m like, what could I do? I’ll go down to Lowe’s and work just because, you you know, like, you know, working on the yard every weekend and everything else. But the reality is, you know, I’m just not cut out for, ⁓ you know, the space, everything else. And I’m like, so it’s really finding something that not only do you think you can do, but you know, you really have that skillset for, and that’s, that’s kind of where I ended up.Micah Johnson (05:49)
Okay.Right.
Love that, man. There’s a group I’m in, we call it the sweet spot where it’s simple, well-paid, easy for you, it’s efficient and you’re thriving. And that’s different for every one of us, especially that easy for you part. Like pay attention to that in your world, the things that just you naturally get and you’re going along with it and you enjoy learning. That’s a, it’s like a big green flag from life sometimes saying, Hey, come this way. How can you keep leveraging this? So I’m glad that you found that man.
Let’s dive into the nitty gritty of it though. So you said pre-recording the big, beautiful bill caused some pretty heavy business influx into your world. Take us into that.
Brian Kiczula (06:47)
Yeah. you know,we cost segregation has been booming, you know, since 2017 with the tax cuts and jobs act. And then when bonus depreciation started to phase out and it was, you know, 80%, 60%, 40%. And then along comes the big, beautiful bill act and it brings back 100 % bonus depreciation. Well, it just kind of.
through kerosene on the fire, meaning folks that didn’t know about cost segregation all of a sudden started asking about it.
So they’re asking their CPAs, hey, I own one or two or a dozen rental properties or I own a small apartment complex or maybe I own a storage facility, will cost segregation work for me? And a lot of times the CPAs and I…
Micah Johnson (07:19)
okay.Brian Kiczula (07:36)
respect CPAs, they have a ton of knowledge in a lot of different areas, just didn’t really understand what we were doing in cost segregation. ⁓ but more and more of them are saying, yeah, get an estimated benefit and let’s see if, you know, if the benefits can help you out. think, I think historically, you know, it’s been the cost associated with cost segregation, which has held or kind of caused a lot of people just not to pursue it.Micah Johnson (07:59)
Right. Right. And then, it runs into an old statement I heard when I was first getting into real estate where it said, you may know how much money you’re saving, but you have no idea how much money you’re losing. And remembering that, that,that cost can actually be a benefit later because it’s doing something on purpose, especially when it comes to, you’re mentioning that you target that 20 million and under project, the boutique hotels, the short-term rentals. Those are hospitality businesses that fully benefit, they have to be those in order to take advantage of those tax breaks. Do you see an influx of those into your world as well right now?
Brian Kiczula (08:33)
across the board on property types, whether it’s storage facilities, apartment complexes, restaurants, you know, we’re, seeing a real healthy mix of properties. And one of the things that, you know, clients will say is, Hey, you know, how can I take advantage of this? explain it to me. And it’s pretty simple. mean, what you’re looking at is you’re looking at on residential property, it’s accelerant or it’s taking straight line depreciation at 27 and a half percent.on a residential property or 39 % on a commercial property. And the IRS carves it out for the structure of the building. It says, by the way, you can also depreciate everything else that way. But if you want to, you could look at your site improvements. All of a sudden you’re landscaping, your sidewalks, your roads, your site poles, your fencing, you know, all of it, your swimming pools, all of a sudden become 15 year property.
So it’s carving up that property into its different, ⁓ you know, just asset classes. And if you’re not even looking at the interior improvements and you’re just looking at the exterior improvements, you know, the IRS, it’s clear as day and IRS publication in 946, know, site improvements are 15 year property.
Micah Johnson (10:16)
Hmm. It’s interesting because I didn’t, I was actually looking it up a little bit more beforehand so I could have an intelligent conversation on it of that reality that you can split the property up. That’s the one I don’t think most folks know. And that’s exactly what you’re doing is how can I, the reality that everything is stuck to the 27 and a half year in the, in the single family, like it’s moving around for someone that’s like, okay, I’m, ⁓I want to learn more about this or partner with somebody to do this. What questions do they need to be asking upfront? How do they know they’re working with someone that can really get this done for them?
Brian Kiczula (10:51)
I think the first thing that you’d want to do is get a free estimate of benefit. Make sure that they’re providing you, you know, a realistic estimate of the findings that you can receive, what the all in costs are, how much is it going to cost me to do the study and then ask them what type of study are they providing? If they’re just providing, let’s say a modeling or a statistical sampling type study, that’s not really a study that’s going to, you know, support itself. If you’re ever.⁓ you know, in an examination, really want a detailed engineering study where they’re breaking down line item by line item. They’re applying replacement costs, new less depreciation. So it’s just getting that free estimate and really kind of looking at what they’re offering.
Micah Johnson (11:31)
Gotcha, gotcha. ⁓What are you finding, like when people are coming to you, what’s the biggest issue you’re noticing with what they’re kind of learning beforehand to what you’re really having to bring them to reality on?
Brian Kiczula (11:43)
two things. So the one big, beautiful bill act has been great for business because more people know about cost segregation. The downside is we’re fielding a lot of calls where clients are coming in and they’re really looking for, you know, they’re pushing the numbers, they’re maximizing their depreciation on these properties. And it’s kind of bringing them back down to earth. It’s like, okay, well, you know, you bought a Brownstone or, you know, a row home in Philadelphia. It’s literally, you know,has zero site improvements, then you have, it was built 200 years ago or whatever, ⁓ 150 years ago, what are we really gonna find in accelerated depreciation on that property? So each individual property is unique, so it’s just making sure that they understand, hey, if your goal is to accelerate the depreciation on this property to offset either tax or active or passive income,
You know, why don’t we have the conversation before you buy the property, while you’re still out looking for the property. I could work up an estimate benefit. Maybe one property is better than another because of something you didn’t even know. ⁓ you know, call it tile floors versus LVP flooring. Tile flooring is considered permanent. You know, it’s permanently attached to the foundation. Well, per the IRS and where LVP is, you know, removable flooring cover.
And the other piece that I think has been kind of a challenge lately, you know, we’re all facing it. It’s a chat GPT again, love hate relationship because a majority of the questions that I get now from clients that are really digging into it, you know, they’re sending me, ⁓ you know, a small essay to read that chat GPT is created that they haven’t even read and they’re asking me to provide information back to them. So I’m happy to help answer those questions.
But that definitely, ⁓ you know, it’s been probably, or it’s just a challenge. It’s one of those things we’re going, you know, back and forth with.
Micah Johnson (14:20)
Right. Right. So if you’re listening to this and you’re going to use chat GPT, just train your bot better. Okay. Just give it them better prompts. Tell them when, Hey, when you talk to Brian, don’t be so long about it. Like give them the synopsis. Let’s keep things moving forward. Um, that’s interesting, man. Cause yeah, it is kind of a love hate relationship. You got more access to information than you’ve ever had. And you’ll re like, think what people are going to understand more and more that haven’t had access to a lot of information and actively used it.Brian Kiczula (14:26)
Yeah.Yeah.
Micah Johnson (14:47)
is information’s great, the action it takes is much different. What it looks like to bring it off that page into real life, that’s where you need people who’ve done it before. Where you were nailing a second go where you hit my head, like why you’d be valuable on someone’s team. Even before the deal, the fact that you can go in and look at this stuff ahead of time, because the numbers that you’re talking about, especially in those larger deals, we’re looking for everything we can get.Right. Currently you’re trying to find every break that you can find anything. I think that’s a super valuable tool to be able to use on the front end. If you have it because don’t miss out on something like you were saying, if it’s simply as a knowing that the difference in floor types is going to make a huge difference, have that person on your team. If you don’t know that is that’s my recommendation because we can’t know everything real estate is a team sport.
Brian Kiczula (15:37)
And I look at, know, some clients are, you know, they’re not looking to buy, you know, properties that have swimming pools or they’re looking for limited site improvements because they’re thinking that that, uh, you know, it’s going to be a maintenance item forum. There’s going to be insurance issues, but I’m like, guys, we really need to look at these properties. This is a huge amount of depreciation that sometimes doesn’t even get priced into the value of the property. So it’s absolutely worth looking at.Micah Johnson (16:05)
And it makes sense, Anything. I always find that and that’s how niches work. Are you willing to deal with these things you think are a little bit annoying to realize the fact that they will treat you really good if you’ll learn how to solve that problem. If you just won’t make it an issue and go deal with it, that’s where you find people. I know people who won’t invest in California and I know people who will only do it. Right. It’s like, it’s literally what that mentality is towards it and how you’re operating just in general. Like are youDon’t limit yourself out there on an asset class if literally talking to someone like yourself could change that, like give you access. Again, we’re all trying to find deals. If people are running away from a deal, okay, how do I run towards that deal? What’s it look like to go get in there?
Brian Kiczula (16:45)
You know, one of thethings too, that, you know, I see this happen all the time. A client will go in and they’ll buy our property and they’ll immediately start gutting the property to do the renovation. So they’ll pull out the floor. They’ll pull out, you know, they’ll just start throwing things away. The appliances, whatever it is. And I just have to warn people. I’m like, when you’re going in before that property was ever placed into service and you’re ripping out items, none of those assets have any value.
So you’re literally throwing away money. So if you can buy a property that’s already in service, you’re buying an apartment complex or a hotel and you have the assets that are in service, you can start depreciating those items because they’re ready and available for use once you closed on it. So then maybe you’re planning on doing a remodel on the building. Well, why not phase that remodel, you know, begin the remodel work next year, go ahead and do, you know, half of it.
Micah Johnson (17:31)
Mm-hmm.Brian Kiczula (17:42)
pull out the assets, throw them away, and then place the new assets into service. Because if you throw away all the short life assets, there’s no value. Same thing even with the long life assets, your straight line depreciation. That’s another real big benefit that cost segregation provides that a lot of people just overlook is you can take a disposition of asset on windows, doors, roofs, HVAC systems in the year that you dispose of them.So if we do a cost segregation study, let’s say we identify 20 % in short life assets, your five and your 15 year property, the other 80 % goes to straight line depreciation. You can use that report well into the future when you have to do upgrades. You replace the roofing cover, you you replace the windows, the doors, you know, all of those items, you could take the disposition of asset.
Micah Johnson (18:36)
Man, you took the reality of you make your money on the buy to a whole new level right there because it is, it’s all these new little avenues can become open to you and leveraging everything we can right now. Man, Ryan, I really appreciate your time today, your story, what you’re bringing, how professional you are about it. For those that are listening in that want to capitalize on this, touch base with you, what’s the best way for them to find you?Brian Kiczula (18:59)
⁓ Easy, it’s my website. It’s costsegrx.com. That’s really the best way to reach out to me.Micah Johnson (19:06)
Excellent, excellent. So if you’re listening or watching in, say this all the time. It’s not random folks we bring on the show. They’re professionals at what they do. Reach out and talk to them. Book a call. Go to the website. Be able to check the show notes. Brian’s links will be there. Reach out, book a call with him if cost segregation is something that you need to add to your business because don’t leave anything on the table, right? Be a professional operator if you’re going to be out there doing it. So Brian, thanks again, man, for being with us. Appreciate you today.Thanks everybody for watching and listening in. If you got value out of today’s episode, please like this episode, share it with someone else who think get value out of it. And as always, if you’re not a subscriber yet, click that button. We appreciate every single one of you that follow along out there with us. We have more conversations coming up with operators, just like Brian, folks out there building a real business in the industry. Thanks for being with us. We’ll see you on next episode.
