Edited Transcript from the Webinar ‘Increasing Your Multifamily Profits Through Cost Segregation’

With Special Guest Stacy Sherman

Originally Broadcast on Jan. 21, 2021

 

Watch/listen to the Webinar.

 

Kim Lisa Taylor:

Welcome to Syndication Attorneys, PLLC’s free monthly webinar, where we talk about topics of interest to real estate syndicators, with the opportunity for live questions and answers at the end of the call. I’m Attorney Kim Lisa Taylor. Before we get started, please note that all of our calls will be recorded and may be used for future promotion, posted on our website, or broadcast in a podcast, available to the public. If you don’t wish to have your voice recorded, please schedule a one-on-one consultation instead of asking questions during the live call. You can do that at our website, at syndicationattorneys.com. Information discussed during this free webinar is of a general, educational nature and should not be construed as legal advice. Today, our guest speaker is Stacy Sherman and thank you, Stacy, for joining us today.

 

Stacy Sherman:

Hey, good morning, or good afternoon, wherever you are. Thanks for having me.

 

Kim Lisa Taylor:

Yeah, we’re happy to have you. We’re going to talk today about cost segregation and how it can save you guys a ton of money on your syndications, and that’s more money that you can share with your investors and more money perhaps for the management team as well and less money that goes to the IRS, which is always a good thing. So Stacy, tell us about yourself and your company and what you do.

 

Stacy Sherman:

Absolutely. I’m based here in Southeast Florida. Our company is headquartered in Baton Rouge, Louisiana, and we have people all over the country. We are the largest independent, engineering-based cost segregation firm. Probably the oldest, as well. I’ve been with the company six wonderful years and my only regret in life is that I didn’t hear about this earlier. It’s a great business to be in. I like to joke that it’s the only business I’ve ever been, where we have only happy clients.

 

Kim Lisa Taylor:

That’s great.

 

Stacy Sherman:

Because I don’t know anybody who wants to pay more in income tax and we provide a legitimate IRS-accepted, always-accepted method to increase losses and improve cash flow, in the early years of owning the building.

 

Kim Lisa Taylor:

That’s a good thing for syndicators. So what is cost segregation?

 

Stacy Sherman:

So cost segregation … there are two ways to depreciate a building, but most people don’t know that. Most people don’t have this conversation with their tax professionals, but it’s been in the tax code for 23 years. Most people let their tax professional know, “Hey, I bought this asset, this building. Here’s what I paid.” That’s the end of the conversation. When it works out that way, almost all the time, probably 95% of the time, the tax professional’s just going to do the easy thing, which is straight-line depreciation. They’re going to take what you paid for that building, put it on line one and it’s going to depreciate over 27 and a half years if it’s multifamily and 39 years if it’s commercial. End of story. Unless you have a real real-estate-oriented tax professional, or some friend told you about cost segregation, then you’re going to have a conversation. What we do is, instead of lumping the whole building as one asset, we do an engineered study, where we break out all the parts and pieces that can be depreciated faster.

 

Kim Lisa Taylor:

Okay, so you’re really just breaking down the building into its component pieces and depreciating them individually?

 

Stacy Sherman:

Right, right, so instead of the depreciation schedule having one line, you’re going to see a whole bunch of lines of a cost segregation study has been done. We’re going to break out the flooring, the electric, the parking, the landscaping, the roof. All the building down to its component level, for faster depreciation. When you do it that way, you can depreciate up to half of an asset in year one.

 

Kim Lisa Taylor:

Wow, that’s pretty huge. So I guess based on that then, you could get up to, I mean a significant amount of cost savings in your taxes, right?

 

Stacy Sherman:

Right. It’s the same amount of loss, I want everybody to understand that, we’re not increasing the amount of losses you can take, we’re just giving you the ability to take a lot of it faster, so up to half of it faster. So it’s about time value of money.

 

Kim Lisa Taylor:

So since our clients are doing syndications, most of them are set up as partnerships, where the tax savings or costs are passed directly on to their investors. Are these the kinds of savings then, that are going to get passed through to the investors?

 

Stacy Sherman:

Yeah, absolutely. Just like depreciation would, it’s just going to be more depreciation in the early years.

 

Kim Lisa Taylor:

Okay, so it’s going to be treated the same as depreciation, as far as the investor’s concerned, they’re just going to see it as a depreciation line item, okay.

 

Stacy Sherman:

Now there are some differences when it comes into the passive versus the active.

 

Kim Lisa Taylor:

Can you talk about that a little bit?

 

Stacy Sherman:

Absolutely, yeah. If you’re a passive investor, your losses are limited to your passive income. So for example, if you’re a doctor, or a dentist, or a trades person, the income tax savings you’re going to get is not going to lower your doctor/dentist/whatever income, your active income. You can only use the losses against your rental income, which with us creating so many losses, it might be more than you can use in one year, in which case, you would carry over to year two, or year three, or whatever. Active doesn’t have that limitation.

 

Kim Lisa Taylor:

Oh, okay. Maybe you’d know this or not, and it’s fine if you don’t. Is it possible for a syndicator client of ours to disproportionately allocate the depreciation losses, amongst the passive investors, versus the management team? Or does it have to follow their percentage interest?

 

Stacy Sherman:

Normally it follows their percentage interest. There are unusual circumstances where you might have, yeah, if you’re putting in more of the money, then you could take more of the depreciation. But typically, it follows the percentage.

 

Kim Lisa Taylor:

Okay. Let’s see. So you mentioned to me when we were discussing doing this interview, that there’s something called the CARES Act, that can offer some significant benefits to our clients. Can you talk about that?

 

Stacy Sherman:

Absolutely, this is so huge. The CARES Act is the Coronavirus package. I’ve forgotten exactly what it stands for. It was passed last March/April, something like that. It’s huge. It created the opportunity to take net operating losses, to carry back net operating losses five years. So the passive investor cannot take advantage of this, you have to use the building in your active trade or business, or qualify as a real-estate professional for tax purposes. Just a note on what the real-estate professional for tax purposes is, people do get confused about that. It doesn’t mean you have to be a real-estate broker or agent. It has to do with how you spend your time. We could talk about that if you want more information.

 

Kim Lisa Taylor:

Yeah, I think that would be relevant to our clients and some of them may know about it and some of our listeners may not.

 

Stacy Sherman:

It’s so overlooked and it’s so important, because let’s take this CARES Act benefit, for example. If you qualify as a real-estate professional for tax purposes, which means you spend 750 hours a year in your real estate, you have to materially participate. So you can’t just own it and have a management company, the 750 hours has to be one hour more a year than your other income-producing activity. So it doesn’t have to do with the revenue difference, it’s more about your time. Oh and the most important thing, everybody should know if they’re going to go for this, either this year or in the future, keep a log. It’s an easy thing for the IRS to go after. You need to keep a log of these hours.

I use Outlook or my iPhone calendar, whatever. You have to be able to pull this open, if you’re ever audited. “Where’d you come up with these 750 hours? You’re a doctor. How could you have these hours?” You have to say, “Here it is. Here’s my activity. Here’s my log.”

 

Kim Lisa Taylor:

Well, I know there’s a bunch of apps that you can get for your phones that allow you to time keep and then produce those kinds of records if you ever had to. That’s huge to know. So this CARES Act applies to active investors or real-estate professionals and what does it allow them to do?

 

Stacy Sherman:

So this is huge. This is like the biggest thing and it does go away after 2020. This is a timely cost, so if anybody’s pulling together their information to file for 2020, definitely consider this. Remember, we create a lot of losses with our study. Now the losses can be carried back five years. Unused losses. So let’s just take a million-dollar asset. Let’s just say you had a million-dollar asset and it’s a restaurant. So we’re going to create about $500,000 in losses. You take whatever you can of those $500,000 losses in 2020. So you have to use whatever you can. Wipe out your tax liability. Any remaining losses are going to be carried back to 2016, because that’s five years ago and then roll forward to ’17, ’18, ’19, ’20, you’re going to probably result in an overpayment, which means you are going to get paid a refund.

 

Kim Lisa Taylor:

I like that.

 

Stacy Sherman:

Yeah, you’re getting a check from the IRS. Now some really smart real-estate investors that I work with figured this out. I mean it was designed to help the restaurant, the doctor, the dentist, the person who was shut down, because of Coronavirus. I wish I knew how to reach those people faster. There are people who could really use this tax refund, but it’s the investor community that I know of who’s really taking advantage of this, because they know the refund amount that they’re going to get, once we’re done with our study and once they go through this tax preparation. The refund amount is going to be pretty close to what they have out-of-pocket to buy the asset.

 

Kim Lisa Taylor:

Wow.

 

Stacy Sherman:

Now this does go away. It’s only for 2020. So it’s too late to buy now with that strategy in mind, because we’re in 2021. But for anybody who did buy in 2020 and meets the criteria, where they used the building in their active trade or business, or qualifies as a real-estate professional, they could possibly get some large tax refunds. It does require amending prior returns, which not everybody likes to do, but yeah.

 

Kim Lisa Taylor:

Okay. Is this something that you would do as part of a cost segregation study, that you would help these clients with, or would they have to work with their own CPA?

 

Stacy Sherman:

We do not do tax preparation at all. We have a very narrow field. We are the nerdiest, most niche business. We’re where the engineering and accounting meet. We don’t do any kind of tax preparation. But we do help tax professionals and we teach this portion of it, around the country, to CPAs and other tax attorneys. But we don’t do any tax preparation. We only do the report on the building that will allow them to take advantage of these tax benefits. So we have to work with a tax professional to get it done.

 

Kim Lisa Taylor:

Great. So let’s see. So depreciation, I know that if you sell a building before a certain period of time, that there’s always this recapture that happens. Does the same thing happen with cost segregation?

 

Stacy Sherman:

Absolutely. You’re going to have recapture, whether you do cost segregation or not, unless you’re doing a 1031 exchange. There’s no recapture on a 1031 exchange, or an inheritance situation. But depreciation is kind of like an interest-free loan from the IRS. You have it while you own the asset, but when you sell it, you’ve got to give it back. So there are a lot of misconceptions about recapture. It is a little bit complex and I have information I can share with anybody. The rule of thumb is, if you’re going to hold the property for two or more years — some people say three or more years — then you want to look at cost segregation. If you’re going to flip it, you don’t want to look at cost segregation. There’s going to be a little bit of a hit on the parts and pieces that we accelerated. The recapture amount is higher on what’s called personal property, that we break out. So it’s a little bit of a hit. I can go into detail if you want, but I thought maybe we should stay out of the weeds on that one.

 

Kim Lisa Taylor:

Yeah, let’s stay out of the weeds on that one, for right now. So you say if you’re going to hold a property for two or more years, then cost segregation starts to make sense.

 

Stacy Sherman:

Yes, well you at least want to get the numbers. By the way, the way our company does it, we do a no-cost, no-obligation estimate. We put those numbers in front of the person who’s looking at it, just so you can quantify, “Here’s what the tax benefit looks like to me. Here’s what the fee is. Does this make sense?” This is such an abstract concept, I like to put hard numbers in front of people, so they can actually make some sense out of it.

 

Kim Lisa Taylor:

Okay. So can you just walk us through the process? Let’s say a client, or somebody who owns a multifamily property, contacts you and says, “Stacy, I want to learn, can we do cost segregation on this property?” What happens next? How do you handle all that?

 

Stacy Sherman:

Right, so that estimate that I just mentioned, that’s the first thing I want to put in their hands. There’s truly no cost, there’s truly no obligation. I just want you to have the numbers in front of you, so you can make a good decision and what we need for that is just we need to know the asset class, which in this case, you said is a multifamily. We need to know the purchase price and what you’re breaking out for land. A lot of people don’t know the land allocation, so I’ll use a ballpark like 20%, just to get us in the ballpark. If they don’t know it, the land’s not depreciable. So we have to back that out. When it’s going to be placed in service, or when it was placed in service. That’s really all we need. If you have more information, we’re going to get more exact, like if the complex has multiple buildings, for example.

 

Kim Lisa Taylor:

When you say placed in service, are you talking about when it was actually built?

 

Stacy Sherman:

No. I’m glad you asked that, because somebody did misunderstand me about that and sent me the wrong information. No, placed in service is when you the owner, or the owners, or became the owner, purchased it. It would be the purchase date if you’re not gutting it and taking it out of service for a while.

 

Kim Lisa Taylor:

Oh okay, so either the date your purchased, or if it’s a development project like certificate of occupancy, or something?

 

Stacy Sherman:

Exactly, yep.

 

Kim Lisa Taylor:

Got it, okay. All right. So you would provide an estimate. So how would that happen? Would you have to be paid upfront to do that?

 

Stacy Sherman:

No, no, no. There’s no cost at all to get this estimate. There’s no cost at all. So we’re going to show you, “Here’s the depreciation with cost segregation. Here’s the depreciation without it. Here’s what that tax benefit adds up to for you and here’s what the fee is.” So there’s no cost or obligation to go through that exercise. However, once you engage us, it’s going to have a fixed fee. The fixed fee is going to be based on the scope of the work, whether it’s one building, a $500,000 apartment, or is it a whole complex? Our fees are going to be commensurate with the amount of hours it’ll take us to break it down. We visit every single property that we study. That’s required.

A note on COVID: that’s been a little bit challenging for our site visits, but we have work-arounds. If there’s no vacancies and the residents don’t want us in, we do have some work-arounds, so we’ve had to do a lot of that in the last, almost a year. It’s been crazy, but we still have to do a site visit. We’re going to gather any documentation that you have, if you had an appraisal done before you bought the building. If you have blueprints, building plans, whatever documentation, we’re going to gather all that up, plus our site visit. Then once we have all the information in, it’s about a six- to eight-week turnaround time to deliver the finished study.

 

Kim Lisa Taylor:

So this is something that would be required prior to submitting K1s to investors each year? Like what’s the timing?

 

Stacy Sherman:

Yeah, it does get a little challenging with the K1s. You need the study before you file your tax return. So if you file timely in March, you’re really past our deadline, because our deadline was last week, to have everything for timely filers, but a lot of people file extensions. So you’ve got plenty of time, if you filed an extension, or file in April.

 

Kim Lisa Taylor:

Okay, so have the study done before you do your tax filings, but if you need to do an extension, which a lot of people do, then that’s fine. Okay. How does the syndicator assist in this cost segregation? I guess they’re the ones that are providing you the information and access to the property, right? Is there a lot of other work they have to do?

 

Stacy Sherman:

No, not at all. No, really not at all. I mean the introduction to the property manager, or whoever can let us in to do our site visit. Provide any documentations and they just sit back and wait. Once in a while, our analysts are going to have questions, but usually, you don’t hear from us, once we’ve got all the information. They just have to sit back and wait six or eight weeks till we hand you the finished study. That’s about it. Then we’ll work with your tax professional, if it’s new to them, or they need any assistance.

 

Kim Lisa Taylor:

Okay, that’s good to know. Then what do they do with that study? Do they just use it to fill out the tax forms? But I guess the study is never presented to the IRS, unless there’s an audit, correct?

 

Stacy Sherman:

Correct, right. It’s kind of like a worksheet they would use to calculate their … it doesn’t get filed, but it’s a worksheet that they could include.

 

Kim Lisa Taylor:

Okay, and this kind of illustrates the importance of having a tax professional for your syndicates, that routinely works with business tax filings and not somebody who’s more experienced with individual tax returns, because they may not have the knowledge about these kinds of things, to help you take advantage of it. So are you one of the people that actually does the studies? What is your role in your company?

 

Stacy Sherman:

No, you would not want me doing this study. Oh my gosh, no. These are people with engineering backgrounds. I do not have an engineering background. It’s people who don’t interface much with, in fact I know very few of our engineers. They’re very focused people. I’m not the person to do it. My role is to do what we’re doing today, to educate people about it and bring in the project and quarterback the project, but we have a whole team of people in our home office with different roles. They’re either working on the studies, or they’re project managers, making sure we’re getting all the information in and turning them around timely. So I’m on the marketing side, sales and marketing.

 

Kim Lisa Taylor:

If someone hires your firm, do they get assigned to a specific project manager then?

 

Stacy Sherman:

Per project, yeah. We have a lot of repeat clients. They don’t always get the same project manager. I’ve never had that requested. I’m sure that could be arranged. And I stay active in all my projects, so I’m going to communicate with the client and let them know the timeline, or if we have any questions, or if we need anything, but it’s a pretty well-run system, well-oiled system. Our company’s done over 25,000 of these.

 

Kim Lisa Taylor:

Wow.

 

Stacy Sherman:

Yeah, we do a lot. We do thousands a year. We have never — not once — ever triggered an audit.

 

Kim Lisa Taylor:

That was going to be one of my questions. Does using this increase the likelihood of being audited?

 

Stacy Sherman:

No, I mean think about it. We’ve done 25,000. We’ve never triggered an audit. Now, usually once a year, once or twice a year, we have someone we’ve done a study for at some point in the past and now they’re being audited and so the study can be opened. So we defend those studies at no cost to the client or the CPA. That’s happened, I think it’s 20 or 21 times, in our 20 years of doing this and we’ve passed with flying colors, every single time. There’s been no penalties or reversals or anything like that.

 

Kim Lisa Taylor:

Fantastic.

 

Stacy Sherman:

So it’s truly accepted, there’s nothing funky about that. There are a lot of misconceptions about cost segregation. But as you can see, with that kind of track record, it’s accepted and understood.

 

Kim Lisa Taylor:

So the fixed fee that your company would charge, is that paid up front? How does that work?

 

Stacy Sherman:

Most people put down a 50% deposit. That’s all that’s needed is the 50% deposit and then they pay the remaining 50% when the study’s finished.

 

Kim Lisa Taylor:

I don’t want to pin you down to pricing, but just kind of like a range, does this cost between $2,000 and $50,000 or what are the price ranges that someone would be talking about?

 

Stacy Sherman:

In the early days, the studies could cost, what you’re talking about, at the top end there. No more. Studies are so reasonable, compared to the benefits. So most studies are somewhere between $2,000 and $10,000 per building. Most fall somewhere in the middle. So it’s just going to depend on how big that complex is.

 

Kim Lisa Taylor:

So $2,000 to $10,000 per building. So if somebody has 10 buildings, they could actually be looking at a $100,000 bill for this?

 

Stacy Sherman:

We don’t get a lot of that, because then we work out discounts, if we’re doing a whole portfolio. No, I mean in that situation, you’d be talking about millions of dollars worth of tax savings, so. No, people don’t usually balk at our prices. It’s so reasonable for what you get. You reminded me of something, too. I do want to bring up one thing, because some people think of this only when they buy a property, or it’s new. But you can do cost segregation on properties you’re already depreciating and you would not be amending taxes to do that. You file what’s called a “change of accounting,” a Form 3115. It’s just a technical way of telling the IRS that, “We were doing straight line. Now we’re switching to cost segregation.” The beauty of that is when that’s done, the change is retroactive. So you’re going to get a whole bunch of catch-up depreciation in the year you apply it. That’s the only tax form that we will complete. A lot of CPAs don’t like doing that form. It’s a pretty complex calculation. We will do that, if it’s needed.

 

Kim Lisa Taylor:

Do you know CPAs that if somebody said, “Well my CPA doesn’t know how to do this.” Would you be able to give them some references to some other CPAs that do understand cost segregation?

 

Stacy Sherman:

Oh yeah. I mean if you look at whatever they call the “Big Eight” firms. I don’t know if it’s called the big eight, or the big six, or the big four … the Deloittes of the world. They all have in-house people like us. So I mean it’s very established, but they typically only do it for their own clients and they can’t do it as efficiently as we do it, so they’re not helping people with half- million-dollar assets. Where we work on a building as low as $250,000 in basis. So most accounting firms don’t have in-house people like us, but some do.

 

Kim Lisa Taylor:

Okay, so this has been really informative. I’ve learned a ton. I’m hoping that the audience is learning a lot, too. I would like to, at this point, let everybody know that we are going to go to live Q&A. So if you have questions for Stacy, please go ahead and you can either put them in the chat, or you can raise your hand and we’re happy to get to your questions. If you have questions for me, you can do the same. But before we do that, Stacy, go ahead and tell us how can people get hold of you, if they want to know more, or if they have some buildings that they might want you to take a look at?

 

Stacy Sherman:

That would have helped if I had my signature all ready to put in the chat box. I can do that. My email’s a little bit long. So it’s my first name Stacy. S-T-A-C-Y@costsegregationservices.com. Maybe you can send it out, after this call?

 

Kim Lisa Taylor:

@costsegregationservices.com. Is there a phone number?

 

Stacy Sherman:

My phone number is 216-272-3961.

 

Kim Lisa Taylor:

Okay. So I’m putting this into the chat right now. If anybody wants to keep the chat, there’s a way to save the chat from a Zoom call, that I just recently learned. If you look at the bottom of your screen, next to the place where you would enter a chat, there’s three little dots. If you click on that, then one of those options is to save the chat. So if anybody wants to do that, before we end the call, you can save the chat yourself and that’ll give you Stacy’s contact information. But we do have a couple of questions.

Kirby says, “Not to pin anyone down on pricing, what’s a good rule of thumb, on minimum property value where cost segregation might make sense?”

 

Stacy Sherman:

Yeah, so back to that $250,000 is the basis of your building. I would say that’s when it makes sense. Then I think somebody asked about age, too. So if you’ve owned it for 15 years or less, so I think somebody asked about 20 years. That’s too old. Unless you have substantially improved the property in that time period, then we’d be cost segging those improvements. By substantially, I mean you’ve spent $200,000 or more in the last 15 years. That’s where it would make sense to at least get a quote and see if it makes sense for you.

 

Kim Lisa Taylor:

So if it’s more than 15 years old, it only makes sense if you’ve done massive renovations?

 

Stacy Sherman:

$200,000 or more in renovations, yeah.

 

Kim Lisa Taylor:

Okay, okay. So it primarily works on buildings that are 15 years or less in age.

 

Stacy Sherman:

Not age, meaning your ownership started 15 years ago, or less.

 

Kim Lisa Taylor:

Okay, so somebody is asking this question, “If the building is more than 20 or 30 years old, does cost seg work?” Well yes, it could work on a property that old, if you haven’t owned it that long.

 

Stacy Sherman:

Right, it goes by ownership. Depreciation starts when we own buildings, starts over with us as the owner. So if I’ve owned it 15 years or less, I want to get a quote and see if it makes sense for me.

 

Kim Lisa Taylor:

Okay. Moses is asking, “Is the $250,000 cost basis, does that include land value, or is it excluding land value?”

 

Stacy Sherman:

If it’s $250,000 purchased, it’s about $200,000 basis after land. So that would make sense. That’s at the low end, where it would make sense. You could look at it, if it’s even lower than that, but it starts to not make sense, because of our fee, compared to the benefit and all that. We want you to have a good ROI.

 

Kim Lisa Taylor:

Well and it’s kind of like syndication. I mean there’s a point at which the legal fees make it not that feasible to do a syndication and then we start looking at, can you do it in a different way, like as a joint venture? Or can we do it under some kind of a master PPM, where we can lower the cost for each of your offerings, if you’re raising $500,000 or less for offering. Okay, so Tim asks, “So from what I’d learned, we cannot pass this on to passive investors. Who can we pass this on to?”

 

Stacy Sherman:

No, it would be passed to passive investors.

 

Kim Lisa Taylor:

Yeah, but they’re limited, right?

 

Stacy Sherman:

They’re limited. They’re limited, so it’s the losses can only offset their passive income. So the losses might exceed what they can take. It just means it would carry over whatever they couldn’t take in year one, would roll over to year two and year three. So yeah, absolutely passive can use cost segregation, but they have limitations.

 

Kim Lisa Taylor:

Okay and then somebody asked, “Can you do cost segregation for a portfolio of residential properties?”

 

Stacy Sherman:

Yeah, as long as the basis is what we talked about. Now sometimes, if the residential group, like if it’s in a neighborhood, let’s say, and they’re well under $200,000, but they’re all close together and maybe like similar fixtures and finishes and stuff inside, that we could make that work for them. So we do single-family homes and we should talk about that. It’s not the most common asset class, but we could possibly make that work.

 

Kim Lisa Taylor:

Is there anything, Stacy, that we haven’t covered, that you think our audience should know about cost segregation?

 

Stacy Sherman:

Yes, there are two things and most people miss out on this one benefit. It’s so important. I wish I would have been on the call about a month or two months ago, because it really comes into play in this second half of a year. So there’s another benefit that goes on top of cost segregation. It’s called partial asset disposition, PAD. P-A-D, partial asset disposition and that is where let’s say, somebody on this call, bought an asset last year and it needs value-add. They’re going to rip stuff out, renovate it. You get to write off the full remaining depreciable basis of what you remove and throw out. So think of cash in the trash.

 

Kim Lisa Taylor:

Wow.

 

Stacy Sherman:

That is a huge tax benefit. But you can’t rip out in the same year you acquired. You won’t get this. You can get cost seg, but you won’t get this extra benefit. It has to be on that year’s tax return. So if you bought in 2020 or prior and you’re ripping out in 2021, if there’s a dumpster, you’ve got cash in your trash and it will need to be on your 2021 tax return. The kind of dollars we’re talking about, is about 20% more or less of your renovation project. So if you’re doing a half-million-dollar renovation project, you’re talking about $100,000 additional tax savings, that if it’s not on your 2021 tax return, you snooze you lose.

 

Kim Lisa Taylor:

So just to make sure I understand this again. You can’t do the replacement in the same year that you do the tear-out?

 

Stacy Sherman:

Well no, you have to have the building in service. You have to have filed a tax return. You can’t buy it in 2021 and start renovation in 2021. You won’t get it on that. You have to wait until the next tax year.

 

Kim Lisa Taylor:

But if you buy it at the end of the year and then you start your renovations in the following year, you’re in good shape.

 

Stacy Sherman:

You’re in good shape. Or, if anybody on this call has a renovation project going on now for a building they’ve owned for any period of time before January, this tax benefit would be available to them. It requires a study that’s similar to a cost segregation study. We call it an asset valuation. You need an engineering-based documentation that documents the value of what you threw out and the remaining depreciable basis.

 

Kim Lisa Taylor:

Wow, so that’s big. I’d never heard of that. Then you said that there was another benefit.

 

Stacy Sherman:

So that’s a big one. That’s cash in the trash. The other one is that the 45L tax credits came back last year. They were on pause for a couple years. Congress did approve it. It’s retroactive three years. That’s a tax credit, which is a little bit different from a deduction, but it’s really good. It’s $2,000 per door, for energy-efficient improvements. It requires an engineering-based study also, with somebody who’s certified in your state, where the building is. So that’s something we could help you out with.

 

Kim Lisa Taylor:

So can you do this in any state?

 

Stacy Sherman:

Yeah, we can do this in any state. Sorry, the 45L is only for, let me just clarify, it’s for residential properties that are three stories or less.

 

Kim Lisa Taylor:

What kind of energy-efficient improvements would someone have to make to qualify for that?

 

Stacy Sherman:

I don’t have the specifics right in front of me, but I can send you a document afterwards, if you want to distribute it.

 

Kim Lisa Taylor:

Yeah, if you want to send us a document, we always post these on our websites. So we can post that document with it, so if anybody wants to go back to our website and look at this teleseminar, or any of the other ones that we’ve done, then you can do that. But sure, that would be helpful. Okay, so I mean just in general, things like adding solar panels, or …

 

Stacy Sherman:

Not solar. Solar has their own tax credit, so it’s separate. It has to do with, I’m blanking on. I have a finished study right on my desk, too. Like the HVAC, energy-efficient standards.

 

Kim Lisa Taylor:

Okay. Wow, okay. So all right, well I think we’ve answered all of the questions of our guests. I thought this was super informative. This was probably one of the more important teleseminars that we’ve ever done.

 

Stacy Sherman:

Wow.

 

Kim Lisa Taylor:

Educating our listeners on what kind of tax benefits that you can get, which just puts more money in your pockets and more money in the pockets of your investors and the more sophisticated you get about these kinds of things, then these are just things that will make your syndications work, where other people’s won’t, because you’re going to understand all the additional tax benefits and the different returns that that’s going to give to your investors, where other syndicators may be overlooking these benefits and just not taking advantage of them. So we do have one more question in the Q & A. “Stacy, repeat the name of the energy tax credit.” I think you said 45L, like Lisa?

 

Stacy Sherman:

There were two things that were taken off of pause. There’s 45L, which is for residential, three stories and below, which is a tax credit. The one I didn’t mention, is 179D, which is for the taller, multifamily, or commercial.

 

Kim Lisa Taylor:

Okay, so that’s similar, that it gives you a tax credit, per door, for energy efficiency?

 

Stacy Sherman:

179D is not a credit, it’s a deduction and it requires an engineering-based study, like the kind that we do and that’s up to $1.80 per square foot, for depending on if you did the HVAC, the building envelope and LED lighting. There’s different ones, depending on your asset class. So I know this is a lot of information to cram into a short call. If anybody did some energy improvements and they just want to say, “Is there anything for me? Here’s what I did. Here’s what I’ve spent.” We’ll put some numbers in front of you, because that’s a lot. This is usually done over a number of webinars. So we’re cramming a lot in here, I think.

 

Kim Lisa Taylor:

Is there information at the website, costsegregationservices.com?

 

Stacy Sherman:

Absolutely, yes. Absolutely, yeah you’ll find white papers and sample reports and all kinds of good stuff.

 

Kim Lisa Taylor:

Okay, well Stacy, this is really helpful. I love that you were able to put this into plain English, which is the way we like to talk to our clients and we like to write documents, so this has been great. Thank you so much for joining us today. Thank you guys for getting on the call today. We’ll look forward to having you all as clients soon.

I just want to let everybody know, that if you’re not already a client of the firm, we do have a pre-syndication retainer. It’s $1,000 and it gives you up to three hours of one-on-one time with me or another securities attorney from our firm and with that, we can help you devise your investor marketing program, or talk to you about strategizing your whole syndication business. And also there’s some other benefits that go along with that. You’ll get a free investor marketing plan template and an investor relations blueprint and you’ll get up to $1,000 off your first syndication with us, or more, if we have a better discount at that time. So it’s really kind of a no-cost thing and it gives you access to our Syndication Weekly Masterminds. We’re currently holding those on Fridays, at 9 a.m. Pacific time/noon Eastern time. So it’s just an opportunity to interact with other clients of the firm.

Also, I invite everybody to review and maybe go look at the products we have available with our affiliate company, at investormarketingmaterials.com. You can actually get to that from syndicationattorneys.com. Just click on the investor materials tab, or you can also go directly to investormarketingmaterials.com and see the types of products that we can provide, with our professional artists and graphic designers, if you want to kind of launch your business and start getting your name out there to people, then that’s something you should be looking at doing. We are working on some other exciting products. We’re working together maybe on another educational website, called syndicationeducation.com, where we’re going to be bringing together the best of these syndication training programs that are out there and making them available to you, all in one place. So we’d love to have you guys become clients, or if you want to have a one-on-one call with us, you can do that. You can schedule that at syndicationattorneys.com. But I thank you all for your time today and Stacy, thank you so much.

 

Stacy Sherman:

Thank you so much. I appreciate it.

 

Kim Lisa Taylor:

Have a great day everybody.

 

Stacy Sherman:

Thanks.

 

Kim Lisa Taylor:

Uh-huh. Bye-bye.

 

Stacy Sherman:

Bye.

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