Avoid Paying Taxes (Legally) with THIS Rental Tax Loophole

Real Estate Rookie

BiggerPockets

How To, Education, Business, Investing, Entrepreneurship

4.8 • 1.7K Ratings

🗓️ 10 February 2025

⏱️ 41 minutes

🔗️ Recording | iTunes | RSS

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Summary

Most people invest in real estate for cash flow or appreciation, but there are enormous tax benefits as well. In this episode, we’re going to share the number one tax strategy you need to know about—the short-term rental tax loophole—which could save you thousands! Welcome back to the Real Estate Rookie podcast! Today, we’re joined by Sean Graham, who is not only a certified public accountant (CPA) but also a fellow real estate investor. He’s going to show YOU how to avoid paying Uncle Sam (legally) with just a few savvy tax strategies. The best part? You don’t need to be a big-time investor with a large real estate portfolio to take advantage of these benefits. Even if you have just ONE rental, these strategies are for you! First, Sean will share the ins and outs of the cost segregation study, which allows you to frontload depreciation rather than spreading it out over the next few decades. He’ll also get into bonus depreciation and the different line items that qualify, as well as the tax “loophole” that allows you to use tax deductions to offset active income—yes, including your W2 wages! In This Episode We Cover: Offsetting active income (and saving thousands) with the short-term rental loophole How to avoid paying taxes (legally!) on your rental property Cost segregation studies explained (and when you should get one) How to retroactively claim depreciation through a “look-back” study Why you can have as little as ZERO taxable income and still be lendable And So Much More! Links from the Show Ashley's BiggerPockets Profile Tony's BiggerPockets Profile Join BiggerPockets for FREE Real Estate Rookie Facebook Group Real Estate Rookie YouTube Follow Real Estate Rookie on Instagram Cost Segregation 101 Get Early Access to Real Estate’s Biggest Event of the Year, BPCON2025 Maximize Your Real Estate Investing with a Self-Directed IRA from Equity Trust Download the Cost Segregation 101 Resource Buy “The Book on Tax Strategies for the Savvy Real Estate Investor” Find Investor-Friendly Lenders Connect with Sean (00:00) Intro (00:36) What Is Cost Segregation? (06:33) Short-Term Rental Loophole (13:10) Other Strategies & Pitfalls (20:21) Bonus Depreciation 101 (25:24) How to Do a Cost Seg Study (28:05) Cost Segregation Study (33:28) Connect with Sean! Check out more resources from this show on BiggerPockets.com and https://www.biggerpockets.com/blog/rookie-521 Interested in learning more about today’s sponsors or becoming a BiggerPockets partner yourself? Email [email protected]. Learn more about your ad choices. Visit megaphone.fm/adchoices

Transcript

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0:00.0	There's a number one tax loophole out there that if you don't know about it, then you're leaving money on the table.
0:06.1	I've personally been able to legally avoid paying taxes using this one strategy, and we'll go over what a cost segregation is, who qualifies, and how to complete one to keep more money in your pocket.
0:23.5	This is the Real Estate Rookie Podcast.
0:25.0	I'm Ashley Care.
0:28.3	And I'm Tony J. Robinson and welcome to the Real Estate Rookie podcast.
0:33.1	Today we have Sean Graham as our guest expert on cost segregation studies.
0:34.4	Sean, welcome to the show.
0:34.8	Thank you.
0:35.3	Thanks, Tony.
0:36.3	Thanks, Ashley, for having me.
0:37.1	Yeah, Sean.
0:55.3	Let's get started with what a cost segregation is. A cost segregation study is really is a way to accelerate the depreciation on your real estate. So the IRS, they require you to depreciate rental, like investment properties that you have, right? Typically, you do this over straight line depreciation. You do it over 30 or 40 years. To get a cost-sex study, that helps you
1:00.4	accelerate this depreciation. So if you take a step back, like you look at it, overall cost
1:06.1	segregation, like you're going to get the same amount of depreciation over the like the 30 or 40
1:10.5	years.
1:11.2	But instead of waiting, like time value of money, instead of waiting for that money down the road,
1:16.1	you're getting the majority of the benefits up front. Does that make sense?
1:19.5	Yeah. And I guess let me let me ask John where for some of our rookie rookies in the audience.
1:23.6	We talk about depreciation of real estate, but it's somewhat confusing because we know that properties appreciate over time.
1:30.3	So can you just even all the way down to the basics and break down, what do we mean when we say depreciation of an asset?
1:35.9	Yeah, so the IRS really likes real estate, right? It's kind of the backbone of the economy of small businesses.
1:42.1	And so they want you to keep reinvesting in real
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