How Real Estate Investors Use Cost Segregation & Proactive Tax Strategy To Legally Slash Taxes

Adam Remis CPA (00:00)

Cost segregation is an incredible tool that not every CPA understands, not every CPA wants to get involved with, but it is a very standard tool within the IRS code that allows someone to take 25, 30 % of the cost of the actual house or condo that they’re renting out. So for example, if you had a $300,000 purchase of a condo and

going to eliminate land for just a moment. That would potentially give you about a $75,000 deduction first year. Well that in California for example, 40 % of 75 grand, boom, that’s 35 grand right to your pocket that you didn’t have to pay

Kristen (02:21)

Welcome back to the Real Estate Pros Podcast. I’m Kristen and I’m here with Adam Remis, is the owner of The Accounting Doctor. We’re going to get into a lot of stuff to help you reduce those taxes. So it’ll be a good one. Thanks for being here, Adam.

Adam Remis CPA (02:35)

Thank you for having me. Appreciate the forum.

Kristen (02:38)

Yes, so how about you get into a little bit about your background?

Adam Remis CPA (02:42)

Wow, ⁓ CPA, been a CPA for about 28 years and I’ve created a company that really focuses on tax advisory and tax preparation. We really try to lower taxes for all of our clients and we love working with real estate professionals and even real estate investors because there’s a lot of unique opportunities specifically for them to lower their taxes and really save save and really save a lot ⁓ of money

Kristen (03:11)

Yeah, you’re the guy people like coming to. You do a lot of good work for people.

Adam Remis CPA (03:11)

each year.

Well, we

try. We certainly try. And you know, with a virtual CPA firm, I’m based out of Phoenix, Arizona, but I have folks all over the country, about 10, 15 folks. It allows me to pick the best and the brightest and really have the ability to scale up very quickly. Instead of being such a regimented force of, I got to be within 20 miles for a brick and mortar. I have that ability to really expand and really find some quality folks.

And that’s what it’s really about by building the business. Absolutely.

Kristen (03:49)

Amazing. So you guys do the tax prep and advisory. Are you actually filing the taxes for people? So is it all inclusive? Amazing. Yeah.

Adam Remis CPA (03:55)

Yeah, that’s part of the tax preparation, absolutely. And the tax advisory

can include, you know, in the very beginning, we love to meet with our clients at least once a year prior to the tax prep the following year. Most of our clients, we end up meeting four, five, six times a year on a regimented program. So we can understand what’s going on with them and proactively not only design a plan, but then implement the plan to lower their taxes come April of the following year.

That’s what we love to do and work with our clients on.

Kristen (04:28)

Yeah, what would you suggest? know a lot of people kind of deal with their taxes right when they’re supposed to. Maybe in like March they meet with their CPA. What would you advise people to do? Yeah.

Adam Remis CPA (04:39)

Don’t wait. Actually,

this is the time. This is the time to proactively sit in front of a CPA and say, hey, here’s my projected income. Here’s what I want to do. I’ve got clients who in fourth quarter almost every year buy a rental property. Why? Because if you implement it correctly, you can have huge tax savings the following year. And come April, that’s their solution.

I literally had one guy on December 31st close on a property last year because what did he want to do? He wanted to implement one of our largest strategies, the cost segregation strategy. He was a real estate professional and that allowed him to take huge amounts of deductions the first year.

Kristen (05:22)

Yeah, talk a little bit about cost segregation.

Adam Remis CPA (06:13)

Cost segregation is an incredible tool that not every CPA understands, not every CPA wants to get involved with, but it is a very standard tool within the IRS code that allows someone to take 25, 30 % of the cost of the actual house or condo that they’re renting out. So for example, if you had a $300,000 purchase of a condo and

going to eliminate land for just a moment. That would potentially give you about a $75,000 deduction first year. Well that in California for example, 40 % of 75 grand, boom, that’s 35 grand right to your pocket that you didn’t have to pay

because you’re on the upper echelon. You qualified for real estate status for a real estate professional status, which basically means

You have to have that as your primary job. You can be part-time somewhere else, but in order to qualify for real estate professional, you need to basically not be working at a full-time W-2. If you’re not working at a full-time W-2, that gives you the opportunity to potentially work through and be a real estate professional. And I have, you know, husbands work W-2 and then the wife doesn’t. Well, then she could become the real estate professional.

And the rules are fairly simple and broad about putting in the amount of time that you need to qualify as a real estate professional. But once you do, then you can buy a home and you can have huge amounts of deductions coming through the first year. And that allows some great, great tax flow and tax considerations and assistance for our clients.

Kristen (08:02)

Wow, that’s

a really great thing to know. And you say that a lot of, it’s not standard for every CPA to suggest that.

Adam Remis CPA (08:10)

Not everybody understands it, ⁓ but there is plenty of cost segregation study firms out there online. 500 bucks, 750 bucks. You can do a comprehensive case study that will stand up for the IRS rules and regulations. And that will then allow you to take that huge amount of deduction first year.

Kristen (08:31)

Yeah, do you see the same things over and over? Maybe things that people don’t really understand with this cost aggregation or maybe they mess up something? What would that look like?

Adam Remis CPA (08:42)

I

think what happens is ⁓ folks use an online tool for a cost seg study and they don’t put the information about what carpet is, what details there are about that condo, and that can significantly adjust how much first year cost segregation benefits you actually receive. We’ve seen that over and over and over again, as well as not really even doing the cost seg. people just

oh I’ll take the 300,000 depreciated over the 27 and a half years and away we go but that isn’t maximizing your first year benefit and that’s why I’ve got clients doing this over and over and over again buying at least one property to kind of lessen their load and the idea is hey I’ll come up with over 10 years 10 properties well that will be a retirement strategy to kind of maintain and manage that either they can or they can have a

a property management company maintain it, have the renters pay down the mortgage, because that’s basically what’s happening, and work through and have solid assets coming through as a retirement strategy. It really works out really well.

Kristen (09:55)

I love that.

That’s incredible. And I know that in the current climate with the new bill that was just passed, you’re very optimistic about some of the things that have come from that. Can you talk more about that?

Adam Remis CPA (10:09)

Yeah, turns out that there was a lot of rules that change with almost all these tax bills, the Trump One Big Beautiful Bill Act, the BBBB Act, that allowed 100 % deduction for first year. Special deduction, bonus depreciation. That allows you to take that first $75,000, just like I described, up to about 25 % of the purchase price.

after you remove land, that allows you to take almost all of that 25 % right off the bat. So instead of staggering it over a number of years, on a federal perspective, you can do that. Some states conform to federal rules, other states don’t. So for example, in Arizona, they don’t conform. So you have to use 27 and a half years for the Arizona depreciation. But for federal,

You can certainly have a segment that will be characterized as five years, seven year, 10 year property. All that can be bonus depreciation and that’s what’s allowed to come through the rental real estate professional properties.

Kristen (11:53)

That’s incredible. I mean, it feels like it would be very difficult to know all this information on your own without consulting a tax advisor. ⁓

Adam Remis CPA (12:02)

Yeah, I think someone who really understands tax rules, who really understands how they can apply them to real estate, that’s really what you need, especially in this environment. Nothing’s ever easy. Nothing’s ever, ever easy. I wish it was. It would be so much easier, right? If it was. we wouldn’t need CPAs later customized and focused just like myself around real estate. You wouldn’t need that necessarily.

Kristen (12:14)

Absolutely. what are some… yeah, that would be great.

Thank

Yeah, well, thankfully it’s a little more challenging so the accounting doctor can step in. ⁓ What are some of your tips for people to, once it’s time to file their taxes, they’re prepared and they don’t have to go back and ⁓ do a bunch of work. maybe tax preparation time isn’t as stressful. What are your tips about that?

Adam Remis CPA (12:34)

Absolutely.

Well, I think I would say, and not to harp on this, but if you’ve been working with a CPA throughout the prior year in 25, you wouldn’t have the stress in 26 trying to gather up everything because you’d be having quarterly meetings, you’d be having ongoing meetings with that CPA that’s proactively working with them. And you you kind of have to be prepared to have those meetings because we’ll say, hey, what are your revenues? What are your expenses?

What’s going on? So you’ll end up having to chip away at the exercise of getting all that stuff put together throughout the year so you can proactively plan. It’s all about proactively plan. If you’re doing this in April of 26, well, you can’t really plan for 25 because it’s already done. It’s already passed. It doesn’t really help you. So you’re in a frantic mode because it’s kind of self-caused. You’re not proactively working.

with that CPA to kind of have them assist you and guide you and mentor you to find the best solutions to lower that tax bill.

Kristen (13:55)

Yeah, yeah, I think it’s good advice to really work hand in hand with your accountant or your tax advisor. ⁓ So as you work with real estate investors, what are some of the simple ways that you assist them in lowering income taxes?

Adam Remis CPA (14:02)

Absolutely, absolutely.

Well, one is this cost segregation study that can happen the first year. The other is making sure that they’re tracking everything that’s appropriate for their rental business. You can use your home as part of a deduction, get about a $1,500 deduction.

just right off the use of your home. You can really make sure that you’re using and tracking all your mileage, tracking all of your expenses, tracking everything that’s involved, tracking your cell phone because that’s the way the tenants get in front of you and make sure that that is a utility bill that’s expensed off. Tracking, tracking, tracking makes it easier towards the end of the year and really looking through all your expenses and all your bank statements to make sure you flow everything you can.

in those returns that is a deductible, allowable expense that’s working towards the production of the revenue.

Kristen (15:51)

Very good. And what are some of your tips for resolving IRS debt? I know that’s another thing that you guys work with.

Adam Remis CPA (15:59)

Yes,

I have a specialty, a whole group that just focuses on resolving tax resolution debt. So it’s really an ugly subject. No one wants to bring it up, but if you, Kristen, had a tax bill of $30,000, it’s not like you’re to go out to your friends and say, I got this tax bill of $30,000. It’s the last thing you want to advertise and discuss. But we would come to your rescue in a passionate way and understand what happens.

we would pull the transcripts from both the IRS and the respective states to figure out what they got on you. You gotta understand what the other side has on you. That’s before you do anything. So our step one is create a plan. We pull transcripts, we figure out what the game plan is. And then we discuss that with you and say, okay, then part of second stage is gonna be tax resolution. And that’s going to cost X amount of dollars.

Kristen (16:38)

Yeah.

Adam Remis CPA (16:57)

but we’re going to get rid of this. Either we can do an offer and compromise where we completely get rid of the debt or a portion of the debt or we’re able to work with our clients to say, you know what, maybe this is a partial installment agreement or maybe if you have lots of assets and money, you’re not going to qualify for those rigid oriented programs. Maybe we just put you on a payment plan, a formal payment plan so they stop harassing you and stop getting those love letters. I call them love letters.

My clients hate them, their collection notices, but I love them because it’s more work for me because I always call them love letters. But still, my clients are like, ⁓ here you go. Here, ⁓ thank you, thank you. I love my love letters. And then I deal and figure out what’s going on. And then I move forward and that’s what my team’s all about. We love it.

Kristen (17:27)

Yeah.

It’s a very positive spin, I love it. ⁓

Adam Remis CPA (17:47)

Why

not? Right? You gotta call something letters that you get. Don’t throw them away. There’s very, very, very specific things you have rights to do once you receive those letters. But once the clock ticks past certain amounts of days, 15 days, 30 days, 45 days, you lose your appeal rights. You lose your collection rights. You lose all these different rights because you shoved them into a ⁓ dresser drawer and you forgot about them.

That’s being silly. That’s being stupid. That’s not being proactive. Once you get the letter, talk to someone. Get help. And as one person said, once I came to the rescue, it’s like a big monkey just left their back. Just came off their back. Because unfortunately, the Internal Revenue Service is a monster. They are the biggest expense that anybody has. Income taxes. Think about it.

Kristen (18:33)

Absolutely.

Adam Remis CPA (18:46)

Right? You go out for rent and you go out for mortgages. Those are big expenses and you always shop for them. Internal revenue service? Go to the CPA, what’s my expense? Okay, here’s my check. No one’s thinking about this proactively. And that’s what we preach. That’s what we do and that’s what we love to work with our clients on.

Kristen (19:07)

Absolutely, and that was something that I’m glad you touched on because I do think a lot of people ignore these letters, hope they go away, and by the time they actually act on it, it might be too late for certain things. And it’s so much better if you just act right away.

Adam Remis CPA (19:19)

Absolutely.

Yep, yep, act right away. And you know, there’s even a program ⁓ for spouses, Innocent Spouse Program. We’ve ended up getting a lot of these working with divorce attorneys where someone will come in, it could be the male man or the wife, either one, doesn’t matter. ⁓ And they didn’t know anything. They didn’t know anything. They were just told, signed, and they signed, and they weren’t really involved. And now they have huge tax bills after the divorce decree occurs.

we can come to their rescue and figure out how to segment and work through those problems and issues. And so we end up working with a of divorce attorneys to kind of make sure that that innocent spouse is protected and made sure that the individual makes whole on all the taxes that need to be incurred and filed appropriately and move forward. I got another case where a husband and wife, they’re separated, divorced.

and part of the divorce decree they realized the husband was doing a bunch of gambling. gambling never got reported. Hmm, okay. Well now both husband and wife have to sign the returns but husband and wife came together and said okay we gotta fix this so part of the deal is the husband has to work with me to say okay let’s get these returns filed appropriately. I pay for all the fees, I pay for all the additional income taxes and wife is signing off and I’m working through both attorneys as part of

Kristen (20:50)

Wow, I mean that’s such an interesting part of it that I wouldn’t even thought to ask about. That’s fascinating. And also with these,

Adam Remis CPA (20:56)

Yep, ⁓

Kristen (20:59)

these notices from the IRS, I think maybe something I’d love for you to highlight. I know there’s a lot of scams and a lot of people who try to prey on people and I feel like the scams are getting more more sophisticated. When is it, you know, how does the IRS communicate? I would assume by mail and like what do people watch out for? And yeah, cause I think, and the other side of it, I think a lot of people just think things will go away with the IRS.

Adam Remis CPA (21:24)

IRS will never call you.

Bottom line, unless you’re in the middle of an audit or the beginnings of a formal audit, they may call you. They may knock on your door, but they will never, 99 % of the time, they’ll never just randomly call you asking for personal information, which is not how it works. Especially if you haven’t been receiving these love letters. So the love letters are the key. Sometimes it’s an automated service that just

Kristen (21:30)

Yeah.

Yeah.

Adam Remis CPA (21:58)

pumps these out and they could be right or they could be wrong. You don’t know until you investigate and figure it out. But there is a lot of scammers out there. There’s a lot of people who talk about the Fresh Start program. The Fresh Start program, it turns out, is a program that’s not new. It’s been going on for 10, 20 years. It’s been going on forever. It’s the version of the offer in compromise. That’s all it is.

There’s a lot of scams out there. You really need a trusted professional who will walk you through and carefully have you go through a two-step process. First, do a complete investigation. Understand where you’re at. Second, propose then, here’s my exact roadmap of how to solve this. If you’ve got that type of solution working, then at least you know it’s much more of a reputable company than just saying, I can fix your problem for five grand or eight grand or two grand.

whatever it is without you having any knowledge or expertise or understanding of your specific circumstances. And then when it comes to the states, it turns out the states are getting even more nasty. They are being even more aggressive, especially California. I know you said, Kristen, you’re in California. They’re very, very nasty. And so every state has its own process, has its own language, has all the different processes and different steps that need to be followed.

And so we do that and come to the rescue as well for our clients.

Kristen (23:30)

That’s incredible. I think that’s such a great note to end on. You’ve given such great advice and practical ways for people to look at their business a little bit differently. So tell everyone where to find you, where to find the accounting doctor.

Adam Remis CPA (23:45)

Well, just feel free to look us up at www.theaccountingdoctor.com. ⁓ My email address I can certainly provide. It’s my first initial last name, aremis @ theaccountingdoctor.com. And love to do a free consult with anybody who’s in your audience to kind of just understand where they’re at and see if we can even help them. Love to assist in any way possible.

Kristen (24:11)

that’s amazing. I really encourage everyone to keep to take advantage of that free consultation. I think that’s an amazing thing to offer people. Well, thank you again. This has been great. And thank you everybody for listening. I hope you got a lot of good information from this. I think there’s a lot of great takeaways. So we will see you back next time. Bye.