Ep57 Pay No Taxes with Joseph Viery

[00:00:00] The magic words in real estate, write-offs. That's what you want. Everybody wants as much

[00:00:05] write-off as you can get every single year because it's the time value of money. You want

[00:00:10] it now? You don't want to wait 37 years. You want to take your expenses now.

[00:00:14] From cornfields to high-rises, office to industrial, houses to hotels, and every other asset class in

[00:00:21] real estate, we cover the people, the projects, and the profit. Welcome to the Investing in Iowa

[00:00:27] Show. This show is for go-doers, action-takers, and business owners. It's for people like you who

[00:00:33] are sick of Uncle Sam taking a huge bite of your apple. If you're looking to get ahead of what's

[00:00:39] taking place in Iowa, learn who is doing what and how you can get in on the action. You're in the

[00:00:45] right place. Hosted by Neil Timmins, an Iowa native who has been involved in over $300 million in real

[00:00:52] estate right here in Iowa. Recording in studio from West Des Moines, here's your host, Neil Timmins.

[00:01:00] I've got Joe Byrie here on the show. Joe, welcome.

[00:01:02] Hey, Neil. Thanks. Great to see you again. Not see you, but hear you.

[00:01:06] Yeah, it's good to see you. Good to see you here on Zoom as we record this, but good to hear you.

[00:01:11] Say, for the audience's sake, who are you? Where are you from? What do you do?

[00:01:14] Okay. My name is Joe Byrie. I own a company called U.S. Tax Advisors Group Incorporated.

[00:01:20] It's been shortened to Ustaggi. And bottom line, what we do is we perform cost segregation,

[00:01:27] which for the investor in real estate means we accelerate their income taxes.

[00:01:31] And you need an engineering company to do that. I've been doing the cost seg industry since 2007.

[00:01:36] I've owned my own business since Ustaggi, since 2017. And there is absolutely very few reasons why

[00:01:43] somebody would not want to accelerate their depreciation. Yeah, good. I wanted to have you on.

[00:01:48] Now, for the audience's sake, you don't live in Iowa, but you do come to Iowa. You and I have

[00:01:53] been friends, I don't know, for five, six years now, probably. And you have done all my cost

[00:01:57] segregations. In fact, in every state where we own anything. And so I get the pleasure of routinely

[00:02:03] seeing you as we acquire something here in town. You fly my way to say hello and look at the property.

[00:02:08] So let's talk about a property. When you say you're going to accelerate that,

[00:02:12] ultimately that tax benefit, what in the world does that mean?

[00:02:15] Okay. So basically the concept is relatively easy to explain, but it's difficult to do it correctly

[00:02:22] according to the IRS rules and regulations. And basically all we're doing is the IRS recognizes

[00:02:29] that your building is, I use the word used up. So let's keep using that term used up. Your building

[00:02:35] is being used up over time. And so rather than wait to whenever you have an improvement to be done,

[00:02:41] the IRS is saying, okay, you can actually use a depreciation expense to signify that your

[00:02:48] building is deteriorating as you own it. And why do people want expenses? Because when you have gross

[00:02:53] taxable income, you want to reduce your gross taxable income. And one of the ways in real estate,

[00:02:59] which is magic, is depreciation. You can deduct that expense from your gross taxable income.

[00:03:06] So voila, I've now either reduced or eliminated your state and federal income tax. So that's

[00:03:12] basically the overview, the nutshell of what we do. If you do not accelerate it, then you take the easy

[00:03:19] way, which anybody, probably a three or four year old could do this. All they need to do is take the

[00:03:25] building basis, which is what you pay for a building, less the land, because land is not depreciable.

[00:03:30] What's left over is your building basis. If it's residential property, you divide by 27 and a half

[00:03:36] years. If it's commercial 39 years. So you can see, you just get a little bit of the expense every

[00:03:42] year for the next 27 and a half or 39 years. If you do cost segregation, we're going to accelerate that.

[00:03:49] So you're going to get a huge increase the year you do the study. So right now, tax year 2023,

[00:03:56] for all intents and purposes should be put to bed. I do have people call me that don't file their taxes

[00:04:02] on time, but let's say that everybody was, we're good boys and girls. That means we're now working

[00:04:07] with the tax year 2024. All right. So they're going to accelerate that. Talk to me about pick any asset

[00:04:13] in the commercial world because all assets are not created equal. I suspect that there are different

[00:04:18] schedules and there's different depreciation benefits for each different asset type. And maybe when you

[00:04:24] say you got to accelerate that, what types of things are we accelerating inside of a particular property?

[00:04:29] I remember one of the buildings we did for you, it was a commercial. I think it was a bakery building.

[00:04:34] Oh yeah. One of the, well, my first commercial building that I acquired, which Hy-Vee is my tenant,

[00:04:39] still a tenant today and they operate their bakery out of the building.

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[00:05:12] These opportunities aren't for everyone. They are for qualified, accredited investors only.

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[00:05:22] Yeah. So that's a good one. So for example, what are we looking for? We're looking for personal

[00:05:27] property, which is five and seven year property inside the building. And we're looking for the

[00:05:33] land improvements, which is 15 year property. The building, a commercial building will always

[00:05:37] have 39 year property because that's the main core of the building. That's the walls, the windows,

[00:05:42] the roof, the HVAC, the foundation, all of that has to stay. So what we're looking for are all of the

[00:05:49] items we can peel away and put in shorter lives. So in the interior of that building, we found items like

[00:05:55] refrigeration, huge refrigeration in that building. We found things like specialty lighting. Every

[00:06:01] building's got main lighting, but there's always with industrial equipment, there's specialty lighting,

[00:06:06] a spotlight to go down on one piece of equipment rather than illuminating the whole room.

[00:06:11] So we're looking for specialty lighting. We're looking for specialty electrical, hooking up all

[00:06:17] of those machines. That's all five year property. Even though it's a wire is a wire, but goes to a

[00:06:24] piece of equipment. Now that's five years. So what we do as engineers, we have to identify, okay,

[00:06:29] you've got a conveyor belt. Okay. The conveyor belt has to have specialty power and we have to determine

[00:06:35] what part of the wiring belongs now in that shorter life asset. And the outside of the building,

[00:06:41] we're looking at 15 year land improvements. Very simple. Fencing, asphalt, landscaping,

[00:06:46] irrigation, all of those fall into the 15 year. And again, you're always going to have 39 year

[00:06:52] of the main structure of the building. So what we do as engineers is we have to piece out,

[00:06:57] take out of the building basis, all of these different items that go into five, seven, and 15 year.

[00:07:03] All right. So you pull them apart and then what happens? How does that stuff get moved forward?

[00:07:08] And what does that maybe put, you know, for, give me an example, or it doesn't even have to be a real

[00:07:13] example. Give me, put some numbers to this. We have a concept of what kind of financial benefit

[00:07:18] it might look like for somebody. So normally like in the building, we did the bakery. I am not

[00:07:22] really a hundred percent sure. I don't have it in front of me, but I would guess we found out of

[00:07:27] the building basis and let's just use round numbers, easy numbers. These are not your numbers

[00:07:32] anywhere near. I don't remember what your building basis was, but let's say you bought that building

[00:07:37] Neil for $1.2 million. And you told me Joe, 200,000 is going to be the land. Now I've got a

[00:07:43] million dollars to work with. So what I mean is you can take that million dollars and divide by 39

[00:07:48] years and get that little small number every year for the next 39 years, or I can go in there and

[00:07:54] break all of the short life assets out. And when I break them out for that building, I probably found

[00:08:00] this example, 30%, which means I broke out $300,000 as an additional above and beyond your normal

[00:08:09] depreciation. The $300,000 is what you would have received on the million dollar building for tax year

[00:08:15] 2023, if we did it for 23. So $300,000, if you're at a 40% tax bracket and then who knows what your tax

[00:08:23] tax bracket is, 40% is $120,000. I just allowed you to keep in your bank. And then I hopefully want

[00:08:29] you to go out and buy more property like Neil does or fix your properties up and improve them.

[00:08:34] But basically that's real cash. That means you didn't not need to write the check to the IRS.

[00:08:39] You kept that $120,000 in your bank account. That's the power of cost.

[00:08:45] It's absolutely incredible. Now love him or hate him. I think we should be able to all agree. I hope

[00:08:49] Donald Trump has a fair bit of money behind him and he probably made a fair bit of money in real

[00:08:54] estate. So if we can agree on those two things, what he said next, maybe something worth listening

[00:08:58] to. He said, if you're in real estate and you pay tax, you're doing it wrong. And it's largely because

[00:09:03] of the depreciation, the ability to do exactly what you're talking about, Joe. And he certainly edited.

[00:09:12] They had the Trump tax cuts, which gave us some significant bonus depreciation when he was in office

[00:09:17] last time. We'll see if those get extended, modified, or maybe expanded as he goes back

[00:09:22] in as we roll into 2025. So more to come on that. Do you notice a difference between asset classes?

[00:09:29] So industrial to apartments to call it a medical office. There's probably some variance, but maybe

[00:09:38] I'll throw the next one in there, which I know there's some variance in a gas station.

[00:09:42] Yeah. Oh yeah. There are winners and losers in depreciation. I'll give you an example. If you

[00:09:47] have a warehouse that has four walls and a roof, a lot of people think that, oh, what could you find

[00:09:52] in a warehouse? It's an empty building. But yeah, there's a lot that I can find in the warehouse.

[00:09:57] Primarily a lot of it's going to be 15 year outside because every warehouse has asphalt. They

[00:10:01] have fencing, they have curb stops, they have landscaping, irrigation, blah, blah, blah. But bottom line

[00:10:06] is any type of building we can find value. And so it's really important for the investor to know that

[00:10:14] the richer the buildings would be the ones that have more interior personal property. So let's go

[00:10:20] through a couple. Hotels, huge. Senior centers, huge. Medical buildings, huge. They've got all of

[00:10:26] these medical equipment. We mentioned medical equipment in your example. The bakery was a rich

[00:10:31] opportunity. So warehouses would be on the low end. On the high end would be buildings that have a lot

[00:10:38] of building material. You're building out and you have cabinets, countertops, and that type of thing.

[00:10:44] But don't be disappointed because I could really find value in really any type of building. Multifamily

[00:10:51] residential used to be stronger, but it's still very valuable. The reason why it changed a couple of

[00:10:58] years ago is the IRS is no longer allowing us to take cabinets and countertops in the inside of

[00:11:04] residential, which is weird because we can take them in commercial. So if anybody wants to know why

[00:11:10] Congress is so screwed up, it's okay. The cabinet's a cabinet. I can take it, accelerate it in commercial,

[00:11:17] but no, I can't do it in residential. Why? Stupid. That is unbelievable. Yeah. So they changed that a

[00:11:24] couple of years ago. So we're no longer allowed to take those items, but I can still find value.

[00:11:29] It's just for a multifamily, we would find 30% accelerated and now it dropped it down to about

[00:11:34] 26% on average. So we still find tons of value. It's just that it used to be higher. But again,

[00:11:40] even single family homes for us, Neil, we do a really good job on smaller buildings.

[00:11:46] Let's talk about single family homes because I think that's a part that lots of single family

[00:11:51] investors have never even heard of this, never thought about this. And now as we're talking

[00:11:54] about this, maybe they're wondering, does this apply to me? So let's talk a little about houses

[00:11:59] because I suspect the last thing you're doing is getting a plane flying across country to go look at a

[00:12:04] house. No. And that's why in my first start of my career is that nobody in this industry did

[00:12:11] single family homes. We couldn't make the numbers work. By the time you did the inspection and got an

[00:12:16] inspector out there, it was thousands of dollars. And if you, somebody bought a home in,

[00:12:20] I'll make it up in Alabama for $300,000, the numbers won't work because of the expense of

[00:12:25] doing this, the inspection. So what we've done over the years, and I'm not talking about two years,

[00:12:31] I'm talking about over seven years is we've developed an analytical approach where we no

[00:12:36] longer need to fly out to the building. We only do this for smaller buildings in the line drawn in the

[00:12:42] sand is a million dollar building basis. So if you have any type of building for a million dollars

[00:12:47] or less, we can do the modeling study or analytical study, and we can do it for under, well under a

[00:12:53] thousand dollars. So we make it work. We give the single family home or duplex, a quad investor,

[00:13:00] residential investor. Now we give them a great opportunity because in the past, maybe even today,

[00:13:06] their accountants don't know that there's somebody that can do the modeling technique,

[00:13:10] the analytical technique, because there's so few of us to do it across the country. The most accountants

[00:13:15] and most owners of property don't even know that we can do an analytical process.

[00:13:20] All right. So let's say for an example, I'm a single family investor. I own a number of rental

[00:13:26] properties. I've owned them for a period of years. Is there a way to help me now? Because I didn't buy

[00:13:32] it this year. If you're a house clipper, execute the burst strategy or do double closings and are in

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[00:14:06] Yeah, actually that's an excellent question because in all the years I've been doing this,

[00:14:10] I've got all these 22 items of misconceptions and that still is a misconception. What happened when

[00:14:16] the Hospital Corporation of America sued the IRS and won is basically the judge said, look, IRS,

[00:14:22] you should have been telling the taxpayer that this is the way you wanted them to depreciate a building

[00:14:27] and you didn't tell them for years and years. So now what we're going to do is we're allowing the

[00:14:32] taxpayer to go back in time and to accelerate their depreciation and get the benefit. So what we do is

[00:14:39] we put a very soft line in the sand about 15 years prior to when you bought the building.

[00:14:46] So we're looking at the acquisition date and cost segregation and depreciation. The value of the

[00:14:51] building currently is not part of the function. We don't care what the building is worth. The IRS only

[00:14:58] cares what you paid for the building. So I can go back in time. Let's say 10 years, for example,

[00:15:03] I can go back in time and I will do the calculations. Okay, this is how much depreciation

[00:15:08] you took straight line in those 10 years. Here's your new depreciation, the accelerated depreciation,

[00:15:14] and here's my fee. And if I can come out 10 times my fee, then it's going to be worth it to do the

[00:15:20] cost seg. So what I want, if I charge you $675 to do this study, I want you to save at least $6,000,

[00:15:29] $7,000 in income tax. So bottom line is we do not need to go to the building. We can do this by

[00:15:35] sitting in the comfort of our own offices and we can do this to make the value proposition

[00:15:41] outstanding even for the owners of small single family homes.

[00:15:45] All right. Does that mean I've got to go back in time and amend a tax return or is it somehow

[00:15:49] apply to today's world? Oh, I love you. No, that's another one. Amendments of bad return.

[00:15:53] We do not do amendments in cost seg. We have that special provision where the judge said,

[00:15:58] IRS, you must allow them to change their depreciation schedule, their tax return because

[00:16:04] they did not do cost seg. So we have a get out of jail free card that you can use. And basically it's

[00:16:10] called a 3115 or a change of accounting method form. So you do have to file that form through taxes,

[00:16:16] but that then tells the IRS that you're going back in time. You're going to recuperate all the

[00:16:21] losses that you didn't take when you should have taken them. And bottom line is here's the math

[00:16:26] because there is math involved. We do the math for the accountant and for the client who started

[00:16:31] as the math, but we don't file tax returns. So then they're going to have to get an accountant

[00:16:36] that's going to file the tax return and the change of accounting method form.

[00:16:40] But we do the heavy lifting. We do the math.

[00:16:42] Okay. You're doing this cost seg. I've got any building. There's a roof on it. The roof

[00:16:48] eventually needs to go out to be replaced. What happens if some of these items like a roof,

[00:16:54] for example, it hasn't been fully depreciated off of, I still have, there's still some value

[00:16:59] associated with the roof. It didn't fully come off. The value is not zero. Is there anything that I can

[00:17:04] do relative to disposing of an item of value when I have to scrape it and put a new one on?

[00:17:10] Here's the deal. What we do in cost seg, we're taking the example I gave the million dollar

[00:17:15] building basis. In essence, what we're doing, the engineers are breaking that million dollars down

[00:17:20] into all of the components of the building. Otherwise you, the taxpayer or the accountant

[00:17:25] would have no idea what the roof cost. We break the roof out. So now you do know out of that million

[00:17:31] dollars, how much of that was the roof? I'll make up a number. Let's say the roof was $59,000,

[00:17:35] but let's say now you bought the building two years ago. Now you got to depreciate. You're going to take

[00:17:40] the old roof off and put a new roof on. You still have, remember 39 minus two, you've owned it for two

[00:17:45] years. You still have 37 years of depreciation on that roof. When you put the new roof on, you need to

[00:17:52] depreciate that roof again at 39 years. A roof is not a short-life asset. It's a long-life asset.

[00:17:58] So what in essence do you have? You have two roofs on the schedule. You have the original one baked in

[00:18:03] the acquisition. You have the new, because you've got the cost of the new roof. The IRS says, no,

[00:18:09] you can't be depreciating two roofs. So they make it mandatory. You dispose of that old roof,

[00:18:16] whatever the remaining basis. I told you 37 years of leftover basis that needs to be deducted as an

[00:18:23] expense. When I say it's mandatory, I say it tongue in cheek, Neil, because really I don't think the IRS

[00:18:30] is going to take anybody to court for not doing this, but it is part of the law, meaning that they

[00:18:35] don't want you depreciating two HVAC systems. They want you to write it off. And I just said the magic

[00:18:41] words in real estate, write-offs. That's what you want. Everybody wants as much write-off as you can

[00:18:48] get every single year because it's the time value of money. You want it now. You don't want to wait 37

[00:18:54] years. You want to take your expenses now. So one of the advantages, if you work with a company like

[00:18:59] Ustagi for a cost end, is we give you the roadmap of all the building components. You throw something

[00:19:05] away, write it off that year. You have to do it the year that you dispose of the asset. You can't

[00:19:12] wait two years or three years or four years. If you miss that year, then that ship has sailed.

[00:19:17] Nothing we can do to go back to that write-off. But there again, everybody should understand

[00:19:22] dispositions can sometimes be a lot more valuable than accelerated depreciation.

[00:19:27] Yeah. You're completely right about that.

[00:19:30] Yeah.

[00:19:30] Joe, highly educational. I love talking to you. I always learn something new every time we get

[00:19:34] together and connect here. I've asked you tons of questions. What's a question or two I did not ask

[00:19:40] that we should absolutely cover for the benefit of the investors out there listening?

[00:19:44] You know what? I think you covered the main topics. Number one, to know that for smaller

[00:19:49] buildings, there is a methodology out there that's IRS compliant and that they can do for

[00:19:54] smaller buildings. That's number one. And I beat the drum always on dispositions because so few

[00:20:00] accountants and taxpayers, they don't get that they need to write off those assets to throw away.

[00:20:06] I think we covered it. And then the number three is the fact that accelerated depreciation,

[00:20:11] you can go back in time and do it. If you miss the boat and you bought the property 15 years ago,

[00:20:16] I might be able to salvage a lot of depreciation expense. I would get a no-cost estimate from

[00:20:22] Ustagi. We don't charge for it. We need some basic information on the building and see if it makes

[00:20:27] sense. If you and your team says yes, move forward. If you and your team say no, we don't think it's

[00:20:32] going to work for us. Very few times does Kaseg not work. Let me just bottom line it. Sometimes it

[00:20:38] doesn't work, but it's so few that it's, I could talk about them, but it's very few circumstances

[00:20:44] where extra depreciation, I would not advise. One of them, by the way, is I'll tell you really

[00:20:49] quickly, are flippers. You need to hold the property for at least two years. If you're a

[00:20:54] flipper and you don't believe you're going to hold the property for at least two years, don't do Kaseg

[00:20:59] because it's the time value of money. And if you're only going to keep that extra cash flow

[00:21:03] for a year and a half to two years, it's not going to pencil out to go through the pain, meaning paying

[00:21:09] me a fee and getting my information. It's probably not going to be worth it to do Kaseg. So that's

[00:21:14] another case. Flippers, don't call Joe. Don't call Joe. Joe's has been great. So for people,

[00:21:21] they want to find you, they want to follow you, they want to connect with you. Where can they go?

[00:21:25] What should they do? We made it pretty simple. It's ustagi.com backslash the investing in Iowa show.

[00:21:34] That's it. www.ustagi.com backslash the investing in Iowa show and no spaces, just the investing in

[00:21:43] Iowa show.com.

[00:21:45] We'll stick the link in the below backslash there. Yeah. The link is below in the show notes.

[00:21:49] Everybody who's listening, you can find it there to make it easy to navigate there. Joe, I sincerely

[00:21:55] appreciate you taking the time to connect here and beyond.

[00:21:58] Hey, Nick, it was good to see you, Nick.

[00:21:59] Good luck to see you.

[00:22:00] I haven't seen you in a while and look forward to a successful, sorry, successful 2025.

[00:22:06] It's going to be a fun upcoming year. The optimism is extraordinarily high. So

[00:22:11] we're looking forward to it. Look forward to seeing you soon.

[00:22:13] Thanks, Dean.

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[00:22:57] Until next time, keep investing in Iowa.