Terry Judge has a tax and engineering background, has been an entrepreneur for over 25 years, and is the founder of CORE Solutions Group. His firm focuses on engineering-based cost segregation studies and other highly specialized tax credits and incentives, resulting in over $1 billion in net tax savings for its clients over the last 15 years.

Watch The Episode Here:

Listen To The Podcast Here:

Transcript:

Charles:
Welcome to another episode of the Global Investors Podcast; I’m your host, Charles Carillo. Today, we have Terry Judge. He has a tax and engineering background, has been an entrepreneur for over 25 years, and is the founder of CORE Solutions Group. His firm focuses on engineering-based cost segregation studies and other highly specialized tax credits and incentives, resulting in over $1 billion in net tax savings for its clients over the last 15 years. Thank you so much for being on the show!

Terry:
Yeah, so Charles, great to to be here and super excited. We you know, that bio is a little bit old. I gotta get my my team to update that ’cause we’re, we’re, we’re, we’ve been in business now for 19 years and we just hit two and a half billion in, in tax savings.

Charles:
Oh, wow. That’s, that’s quite the difference.

Terry:
<Laugh>. Yeah. So I heard that 1 billion. I’m like, man, that’s an old they sent you the wrong bio, but it’s okay. <Laugh>.

Charles:
So give us a little background on yourself, 25 years plus of being an entrepreneur. Can you kind of go over exactly you know, your background both personally and professionally prior to getting involved in what you’re doing now, your cost segregation, engineering business?

Terry:
Yeah. So, you know, always been an entrepreneur at a, at a very young age, always doing things to make money. Always thinking, you know, bigger than the normal nine to five job that my mom and dad wanted me to do. So I went to engineering school, you know, or, or that was my college education was gonna be an engineer, mechanical engineering. And just knew deep down that that’s not, that’s not gonna move the needle for me. And I always had this thing, you know, in my gut that I wanted to be an entrepreneur. But coming from a family that nobody was an entrepreneur, you know, in that regard, everybody worked for, you know, I’m from Detroit, so you can imagine everybody kind of, my dad, my uncles all worked for in the automotive industry, gm, Chrysler, you name it. They worked there and that’s kind of where I grew up in.

Terry:
And didn’t really want my brother followed my dad’s footsteps, kind of did it, things that he did in that corporate sense. And then I really was the black sheep, always doing odd end things and did so many different things before I landed opening up my company when I was actually 34 years old. I started core solutions group, which we’ll talk a little bit about today. I, and that was in 2006. But before that, you know, I was doing some consulting and advising always in the, usually the commercial building space I was in, the energy I got in the energy business at a young age. I was doing the deregulation of, of energy where you could buy your gas and electricity kind of from, you know, from a different retail supplier or for a discount, right? That was that was kind of the monopoly that was starting to break up in the early nineties and was doing that, gotten some other energy efficiency type advising and consulting.

Terry:
And then lo and behold, this thing called cost segregation just landed on my lap. I was introduced to it by a CPA that was not doing it by the way, but just, I don’t even know how I was on their email list. It was just something that was sent to me and I was reading it. And then I initially, I immediately called my CPA and I said, what do you know of this? Because I was always, I was, I always was intrigued about buildings in itself. You know, I don’t know why, but I’ve always was interested in that real estate. I ultimately wanted to get into real estate, even at a young age and had some rental properties, you know, back when I was in my early twenties. So that was always intriguing and everything kind of came full circle when I got involved in this thing called cost segregation, which after I’m talking to not only my CPA many different CPAs around the country learning that nobody was doing this, you know, back in the early two thousands, I was just so intrigued by it.

Terry:
I’m like, why is nobody doing this? Why are CPAs not offering this? And I just found out that it was a very niche or niche people say in the tax code. And it just wasn’t something that CPAs offered. And I immediately, at 34 years old, I had a ha aha moment and realized that this was something that was missing in a lot of mainstream real estate investors. And we launched the company and it grew very rapidly. And then from there, learning, you know, and working with a lot of real estate superstars that were, became clients of mine, I got my, you know, I, I ended up getting in some, some, some syndications with them as a limited partner. And then moved into more now of the more of an active partner in a, in a di in different deals. So I can kind of get into what cost segregation is, and if you, you know, we can go kind of keep it light, keep it deep, whatever, however you wanna take this, you know, <laugh>.

Charles:
Yeah, no, it’s, it’s interesting you were talking about attorney accountants not knowing, not understanding all the different tax. ’cause I, I find that when I speak to accountants now, and even, like, I remember like the qualified opportunity zone, I was talking to an accountant about that years back, and they didn’t understand what it was. And I literally had to like email ’em something. So it’s, it’s, you know, a lot of these things you just have to know when you’re picking these professionals, whether there’s attorneys, and make sure that they understand the strategies that you want to employ in what you’re doing. And the same thing with your accountants, any of these people that you’re working with, it’s super important. ’cause We, I thought being naive decades back when I started investing in multifamily, that, you know, every accountant would know everything, and it’s very specialized and knowing exactly what you’re doing and then what they can expect.

Charles:
I think as you have more deals going on and more stuff happening, you have to keep those lines of communication open with the professionals that you’re paying and not just talking to them once a year or when you need them. You know what I mean? And so, you know, thanks for bringing that up, because that’s an important thing I think that investors need to understand when they start building their team, is that, you know, kind of turn the table a little bit and interview them about who they’re working for. Do you have investors that are doing what I’m doing and stuff like that.

Terry:
That is so key. Your financial team and who you surround yourself with is so key, you know, from a good real estate attorney to a real estate CPA, you know, that has that background and understanding. Maybe they’re not offering cost segregation because CPAs don’t offer this as a service, but they would partner with a company like mine. So, and just adding that in and then adding somebody that from a cost eg background like myself to the financial team is very key, very important. I still find it being missed, underutilized and an afterthought. And I spent a lot of my time on shows like this. I have my own podcast, really just educating people on how you can add this tax strategy into, you know, the kind of the due diligence of a project. And it, it really moves the needle from, from far, from as far as from a return on investment for investors.

Terry:
And so we just try to push this, you know, up to the top of make sure that this is part of your capital stack, this is part of your presentation or your pitch deck. And talking about how this can impact, you know, not only the general partners, obviously, but the limited partners that are coming into that deal. If you’re gonna put a hundred thousand dollars, you know, into an investment, yeah, you’re gonna be an owner, you’re gonna get some ownership of that property, which is a beautiful thing. And then you can also use cost segregation to minimize or, or basically eliminate any tax that you would pay on the income of that property as a paper loss. And there’s obviously some other rules and whatnot. If you’re getting into short-term rentals, you know, that’s a, there’s another play for high net worth individuals.

Terry:
So it depends on everybody’s situation when they’re coming into a deal. If they’re gonna be buying a deal solo, maybe a fourplex, you know, maybe they’re just getting started, they want to get out of their W2, where you can apply these, these tools and strategies, and it can really accelerate your wealth and just getting around the right people. Charles, as you know, building your networks over the years, how important that is and how, how much further along people can get if they’re in the right rooms, getting the right information than executing, building their financial team. Adding cost segregation and tax planning is just, it’s so key. It’s so critical as a part of the overall journey that pe everybody’s on, right?

Charles:
Yeah, Terry, so let’s, let’s break down for us what cost segregation is and kind of how investors can utilize this in their strategy of investing.

Terry:
Yeah, so, you know, for, for, for folks that don’t know, it’s been in the tax code since the late sixties. It’s gone through so many variations and flavors. It was, it was then, it was eliminated from the tax code in 80 19 86, came back in the code in early nineties, and nobody really knew about it. The IRS does a horrible job at promoting tax incentives, right? There’s, you’re kind of on your own, right? And if your CPAs are not on the forefront of this stuff, you know, sometimes they, they’re not promoting it either. Now things have changed. Now most CPAs are getting and embracing this. But essentially, cost segregation is just a way the IRS allows you to break apart a building and write it off some cases up to 50% of the purchase price or construction costs in year one. And then it gets spread out over year five.

Terry:
And then for, there’s different buckets for land improvements, it’s 15 years. And the rest of it just depreciates over the, what we call the straight line method. But essentially the IRS will allow us to come into a building and break apart the electrical, the plumbing, the, you know, the irrigation, the parking lots, the curbs hundreds and hundreds of components that make up the big cost of that building. Where now they say that some of these assets are going to have wear and tear and it’s, it’s like a car. It depreciates. Soon as you take it off the lot, it’s the same thing. The clock starts ticking on a, on a commercial building or a residential investment property, and certain things are gonna wear out when the IRS basically says these certain components of that building which is like the interior and a big portion of the exterior can now be written off in year one.

Terry:
And instead of waiting the normal straight, what we call the straight line method, let’s say you bought a building, well, the IRS is gonna say, you can depreciate that property over the next 39 years or you could take this cost segregation road and it, which is another kind of avenue in the tax code where you can now apply these new and improved rulings. And that that property now can be written off over, like I said, one to five years. And what that does is that you can, all that front-load depreciation that you’re taking in the early life of that building, you create real time value of money. A dollar today is worth more than a dollar down the road. And I, I like to use the analogy, if you and I were to hit the lottery, we want a million dollars. Do we wanna be paid out today?

Terry:
Or do we wanna wait and be paid out over, you know, 39 years, let’s say? Well, the answer is today, you want to get that money in your pocket today to use it to grow your wealth. Why would you let the IRS hold onto your money for all that time when you can get it in today’s dollars and accelerate your, you know, your your real estate journey. So that’s really the concept. We’re just basically breaking apart. It’s like a, think of it as it’s a, it’s a like a forensic audit for your building. And we are breaking apart every component right down to the electrical jack behind the wall, the wiring behind the wall, the carpet, the fixtures, the drop ceilings, non load bearing walls, everything pretty much in the interior, especially if you’re renovating it and you’re building it out, all of that material and all of those components are a big chunk of them, again, can be plucked out and then written off.

Terry:
And that’s what we do from an engineering standpoint. We have to understand, you know, when was that building con originally constructed? What type of materials were used? Then we go to this, what’s called permanency rules that the IRS has set out. And it basically means that if components are removed from the building, how much damage does it do? Does it do, I mean, this is really gets where it gets granular. Why just somebody just can’t do a cost report willy-nilly. You don’t wanna mess with the IRS, so it has to be done according to their specs. And that’s why we’ve been doing this for 19 years, never had a disallowance Charles, just because we’re doing it to the t we’re crossing the t’s dot in the i’s. And but when it’s done properly, when it’s done correctly, when it’s a true engineering study, you get the huge bang for the buck.

Terry:
And what’s nice about the cost side is, so if you’re a real estate investor, what we would consider a, a real estate professional, you know, you’re doing real estate mostly for your career, you then can take this depreciation. Not only can you use it against income from the building because you’re, you know, you’re generating rental income but you also can use it against wages. You can use it against W2 income and you can use it against other income that if you have other properties. So it’s not one for one, excuse me. And that becomes a massive tool for, for folks that are doing real estate full time. So that’s, you know, and then if you’re passive, there’s other rules for you where you’re just, now you can take the depreciation against the income that, that one particular building that you’re an investor in, maybe you’re not an operator, you’re just threw some money in as an investor, but you’re still considered passive. You can then take it just one for one. Whatever that income is generating, you can offset as well. So that’s some of the nuances of, hopefully I answered the cost or the cost, that question.

Charles:
Yeah. One of the things when the first time I think someone explained cost segregation to me, and I was a c class multifamily investor, and they were like, you know, you put a faucet in there that thing’s not lasting the straight line 28 and a half years, right? And you’re like, oh yeah, no, it’s not. No it’s not. So you’re breaching that over that lifeline, which might be five years, right? Seven years if you’re lucky, whatever it might be. And so you’re like, okay, that makes perfect sense. So I’m not, you know, I’m really getting the true depreciation on this. And then with all the bonus and all this other additional stuff that can happen depending on who’s in the White House and what’s going on that also changes you know, how much you can take. But I think one of the first things that I, you know, with real estate is that I, I’ve learned that there’s not really tax elimination strategies. It’s really just delaying paying. And as you brought up people miss too, as the inflation portion of it, no matter if we’re what type of inflation period we’re in, that can dramatically change, you know what I mean? Depending on how many years that you’re delaying that payment, you know what I mean? Before you might have to pay that. So it’s a, it’s a very, it just adds onto how powerful a strategy can be.

Terry:
Yeah. And there’s, you know, now there’s different layers. We’ve evolved as a company as well. So we’re not just a cost segregation company anymore. We’re, we’re really more of a I guess a higher level tax company for real estate investors per se. But so when we, our approach is, you know, we take a look at the, what, whatever you’ve originally purchased, then we take a look at what are we gonna be doing for renovations, and then what are we doing for the land itself? Because there’s different strategies to not only handle the renovations cost, ’cause there’s something called partial asset disposition that goes into our cost eg reports. If you’ve never heard of that it’s important to understand that when we get hired, we like to get in there before the renovation starts so we understand what’s coming out. Because the IRS basically says, if you’re gonna be doing a heavy rehab and you’re gonna be tear tearing out, you know, cabinetry and sinks and wiring and all that stuff that you would be throwing in the dumpster, well, those really have full depreciable values that we can calculate through what’s called this dpad or this or I’m sorry, a partial pad, partial asset disposition study that we add into the report, which will monetize all the things that you’re throwing in the garbage can.

Terry:
And people are like, what? You, we, yeah, the IRS will allow you to take another big hit on the depreciation. So that’s why we can get, we, we, when we do this stuff correctly and we follow the timelines we can really help our, our, our clients, you know, get up towards 30, 40%, sometimes 50% of everything that they’re spending, if it’s done, you know, in sync. And, and, and so we can kind of capture that stuff. And then that at the end of it, obviously we’re getting the final change orders for renovation costs. So we do the as-built, we do the renovation tear outs, and then we do the finishes at the end, which is like really a three-prong approach to max to maximize all of the available depreciation, otherwise certain things could get missed. And then we like to also do what’s called a land allocation study.

Terry:
This is interesting. We’ve, we’ve added kind of a, we’ve added an, an appraiser to the, a land appraisal to the, to the, to our team. And so we typically, when we see buildings that have a purchase price about over 10 million, we like to make sure that we’re putting, we’re allocating the real estate and the land separately, and we wanna put as much as we can into the real estate so we can get more depreciation. ’cause Land does not it does not depreciate in terms of normal, you know, depreciation that we’re talking about. So the land just gets separated, it goes on the depreciation schedules as is. Usually it’s an 85 to 15% split, 85% real estate, 15% to land. That’s kind of the rule of thumb in the United States. But we like to say, we like to see 90% push to real estate, or 93% push to real estate and 7% to land.

Terry:
And that really moves the needle for our clients. So we’ll do that legitimately and work with them, making sure that we have the best land and real estate allocation split as that building goes into service. And that’s, that’s a, that’s a big thing as well for multifamily. One more thing I want to add. Four multifamily, four hotels, senior living. When you’re acquiring this property, there’s usually, it comes with a lot of furniture fixtures and equipment in there. It comes with desk and lawnmowers and rakes and computers and workout equipment and tractors and all these things that, you know, your CPA’s not gonna walk on site and start with this clipboard trying to figure out what’s what was acquired. And so we’ll do what’s called an FF and e report and furniture fixtures and equipment. And what we’re finding is that it’ll move the depreciation up around four to 5% additionally, right?

Terry:
So now we’re getting, we just finished, we just did a, I just, it just matter of fact, just this morning we were kind of going over the numbers of one of our clients. He had a, you know, a multifamily property and everything. We did everything that I’m just sharing with you right now. And we were able to pick up another like 800 grand and just, and it wasn’t a huge property by just going in there and plucking out all these other things that I was sharing with you. And we’re just about to finish the land allocation study and that we’re hoping that’ll move at another four or 5%, so it’d probably be over a million dollars in additional depreciation by making sure that, you know, we’re approaching this correctly. And, and so that’s, that’s an, I just wanted to share. We call this our premium eg cross eg study <laugh>, it just has different layers. It gets a little overwhelming but there are other layers within this cost eg world that you can get.

Charles:
Yeah, it’s interesting. I never even thought about the fixtures before like that as in you know, that wasn’t connected to the real estate. So that’s, that’s great to know. One thing first time I did a cost segregation years back on our first syndication, the, the first thing that I found with it, or the first question, one of ’em I had was that how does it work with the CPA, and I think this is people that, so you’re taking care of this study. My CPA doesn’t know everything or that much about cost integrion as we talked before. Let’s just say for example, so if I’m a passive investor or I’m a GP, and I get this report from you, how does this work with the accountants and how does it work with, like, say there’s a, you know, I’m a limited partner and the GP tells me I’m gonna get all this money off and depreciation all this kind of stuff. You know, what do I, am I just getting a regular K one with this information put in it? Like how does that work?

Terry:
Yeah, great question. I mean, you know, again, it’s just, it’s communication at, at the highest level. You, you, you know, we, we feel like when, when syndications are going really well, there’s CPAs involved, the EC person’s involved there’s, there’s good dialogue back and forth, whether it’s email or, or, you know, conference calls. And when, when, you know, when I, when I’ve been involved in syndications where the, the communication was not good and which led it leads to chaos, and when are we getting our K ones, how much is it gonna be, you know, you got, you got the CPA that’s handling the, the syndication at the top, and then you’ve got your own personal CPA on the side waiting for the K one so they can finish your tax return. So I, I just think it’s as long as everybody’s in communication, as long as you’re getting the documents from the EC study to your CPA in a timely fashion, and then also answering those questions.

Terry:
So we, you know, we like to be available for questions and, and making sure that everything goes smooth. But, so, you know, CPAs, once they get the information, they understand this intimately, they know how to take our work and incorporate it into someone else’s tax returns. So I just think it’s timing and it’s, and it’s just good communication and everything usually goes fairly smooth. There’s, there’s no gotchas. Sometimes there’s some questions based on if somebody went in with a 10 31 exchange and they’re, they’re, they’ve got some more sophistication going on because they rolled their capital gains into this, you know, new project through a 10 31, or they’re coming out with, you know, they’re investing through their their IRA or, you know, whatever, whatever those situations might be. So we’re not a CPA firm, so we have to draw the line somewhere. We can’t just give advice on accounting and their personal tax returns.

Terry:
So we really kind of back off, but we are pushing it all the way to the CPA’s front door and saying, here are the numbers. Here’s our work papers, here’s what the benefit’s going to be. If you have any questions, please reach out to us and we will help guide that. There’s also something called a 4 81 adjustment. That’s a whole nother conversation. And that’s basically, if somebody’s owns, has owned a property and never did a cost sex study, they feel like they’ve lost the opportunity. And we, we say, no, you have not lost the opportunity. The IRS will give you a onetime automatic consent. You go back to the date you bought it. We usually go back about 10 years and we’ll recalculate all that depreciation, and we do not have to amend return. So for those of you that are listening, you have property, you’ve never done a cost x study in the past, we can go back recalculate what that depreciation would be.

Terry:
You get to carry it forward in the current tax year. You don’t, you do not have to amend returns. And that is what we call a four eighty one adjustment. And CPAs are like, what? And so they, they’re, they like, they’re like, we’re not, you know, concor do that. And we, so 99% of the time we, this is probably what I would consider the only CPAI guess, service that we would offer, just because we’ve done it so many times and CPAs have done it so few times they want us to do it. We can do it at half the cost. And we will run point on that accounting piece, which is just a change in accounting. Goes on a form called 31 15. And, but that’s all important. So just to answer your question, like all these things will happen as long as everybody’s communicating on what those things are and how important it is. And everybody’s has a little bit of a unique, not everything. Sometimes it goes super smooth and everybody’s, it’s just cookie cutter cut and dry. But there are, there are some things that are unique to, you know, everybody’s situation that it has to be accounted for.

Charles:
Yeah, no, that’s a lot great information. So for the GPS working directly, or the owners of the property work directly with cost segregation firm will work directly with their CPA. And then if you are a limited partner and it’s cost segregation, you’re, you’re literally just getting a K one with this information already done to it. And all of, I, I’ve given my CPA many different k ones with cost segregation studies in them, or have been implemented into them with depreciation, and I’ve never had questions about it. So it’s a very straightforward thing for CPAs. If you’re a passive investor, don’t worry about, you know, all that stuff. It’s just pa it’s an easy, you know, for the email to your to your CPAs, I tell people and you know, they should be able to take it from there. But one of the questions too is talked about about multifamily, talked about some other property. What are the other property types that you’ve done or that are available to do cost segregation because you know, what have you been involved with doing and you know, what’s the extent of this cost segregation ability?

Terry:
Yeah, I mean, and I get asked this like a, so you know, to answer your question, like any asset class that is a investment property qualifies even a residential home, which we got into a few years ago. And because of the Airbnb boom and people have, you know, portfolios of single family residential properties that they had no idea they even qualified, you know, for cost, you know, cost sake. So it’s really, you know, I, we see the highest ROI by far in an asset class right now is mobile parks, mobile home parks. And that’s becoming more and more popular. I mean, we are writing off 70, 75%, 77% of the entire purchase price because a lot of it’s just land and there, it’s developed land and all that land can be taken because of this thing called bonus depreciation. You don’t have to spread it out over the course of time.

Terry:
Everything gets forwarded to year one and you get, right now we’re in a, what’s called 60% bonus. We’re hoping that retro backs to a hundred percent. When Trump was in office, he instituted this thing at which really put costing on steroids as you, as you probably know Charles. And everybody in our world just went crazy with a hundred percent bonus. ’cause You could now, you didn’t have to wait, you know, a day. I mean, you literally just, you bought the property, put it in service. We come into the cost sag, you get a hundred percent write off on everything that we can pluck out and move it into what we call personal property, which is just, you know, that all the shorter life assets in a building qualifies personal property from a federal level. All that stuff can be written off, you know, in year one.

Terry:
So that’s a, so, so mobile parks by far, would, would, would be the highest depreciable return on investment? I would say next would be, you know, multifamily obviously is great. There’s so many things that qualify as personal property that you can write off quickly. I would say hotels are phenomenal senior living and we’re doing a lot of hotels. Office is starting to uptick a little bit. We’re starting to see more office. There’s a lot of repurpose going on with after covid, people are obviously back to work. There’s a little bit of a hybrid thing going on. A lot more common space and open areas and this and that. And so we’re starting to see that’s good. And office, office also qualifies for something called qualified improvement property, which we can write up upwards of 80% off of the renovation costs.

Terry:
That’s a whole nother little tidbit or program that’s available for investors when they’re getting into office storage is great. Storage is another really high return. Just because of the, sometimes the entire build of the storage. There’s not a lot to them. We’ll qualify as personal property. Same with mobile parks. That’s why we can write off so much stuff. ’cause Most of it qualifies to be very favorable when we’re doing our cost seg reports. So yeah. And then Airbnbs are great. I mean, obviously that’s a huge boomer around the country. People are looking for that second vacation home. They put it in an LLC and well, there’s, I’ll just touch on real quick. So when you buy a, if you’re a high net worth individual, let’s say a doctor or a lawyer, and you’re like, God, I gotta diversify. How do I do this?

Terry:
I’m getting hammered. You know, guys making a million bucks a year paying Uncle Sam upwards of, you know, 40% of us, all that goes to Uncle, uncle Sam, how do they mitigate their taxes? And so, you know, we, we can advise where they would just go buy a short-term rental. And that’s what I did a couple years ago and, and bought something down in Naples, Florida. That’s, that’s where I’ve always wanted to have a spot. And it turned out where, you know, we were able to do a cost shag, as long as you manage the property for a hundred hours a year, you can qualify you and your spouse, your, you know, you can qualify for what’s called material participation. And the IRS will now they basically say that that property now is inactive. It’s a business. It’s, it’s got a, it’s, it’s like an active activity.

Terry:
It’s not passive, therefore the depreciation becomes active. We can then move it towards active, other active income, which will hit your W2 wages and or your spouse can go get a real estate license. Anything that can basically, you know, work in your favor on qualifying for some of these programs you now can, you know, take this and use it against income. So now people are like, holy crap, okay, I’m gonna have a good year this year. I better go look for an investment property. So instead of just focusing on cash flow, their number one concern is depreciation. This is how they can justify going to buy a property. Because even on like a, call it a $600,000 property, you know, your first year tax write off is probably gonna be close to 200,000 or more. And that can go that, you can slide that right over to your adjusted gross income.

Terry:
And again, your CPA will work with you on that after they get our coex study. And boom, you get this huge, you know, kind of this tax break and now you have a, now you have a property that will eventually cash flow once you put renters in there. So anyway, so that’s a little tidbit for somebody. It’s a high net worth individual, maybe can’t qualify as a real estate professional or full-time real estate person, but they’re looking for tax benefits and they’re looking for cash flow and they’ve always wanted a second home. This is their opportunity. Now, the IRS will allow you to kind of move into that and really maximize, you know, you get your down payment back because you’re saving so much money on your tax. It’s like, what was, what did you really pay for your, you know, your, your down payment for that property? Probably zero. And people, once they understand, they’re like, oh God, okay, I gotta get off the fence and I gotta go buy a, you know, mar dream or lake house or whatever, whatever that might be. Terry, how

Charles:
Does a secondary cost segregation work?

Terry:
What do you mean a secondary? Can

Charles:
You do a secondary cost segregation after owning a property? Is that possible? So you can do an additional one is, or do you just do one when you purchased the property and that’s it?

Terry:
Oh, so, okay. So I think, I think I know what you’re talking about. If somebody buys a property, are you talking about so they buy the property and then are you saying that after they do the renovations, let’s say in another tax year? Or would you, is that what you’re considering a secondary? So we, we, yeah, we call that our piggyback, you know, we’re doing a mini report or a piggyback study and it does so any, so the IRS basically states that anything that goes into service in that whatever tax year that counts for that particular year. For instance, someone buys a property, let’s say in November of 24. Like we’re in November, right? Or we’re almost in November, so we’re in October, but let’s just call it November. But the, the CapEx budget plan is not going to be finished until 25, right? Maybe April of 2025. So those, those renovations are gonna be have start dates or they’re gonna have in-service dates in 2025. And let’s say that you’re gonna spend a half a million dollars on the renovation. So yeah, we would then do a mini study on the 500 grand in renovations and basically, you know, add that into the original study and then send that off to the CPA so they can be, they can be accounted for. So yes, it’s called a secondary study.

Charles:
Terry, as we’re wrapping up here, one question that I, you know, I don’t think it’s mentioned much when we’re talking about these tax delay strategies within real estate. What happens when the property is sold and how does depreciation recapture work and you know, how does that affect the investor and for them planning for and everything?

Terry:
So we get into recapture, we like to say that, you know, hold time was about three to five years to really mitigate some of that recapture. We don’t recommend doing a coex study if it’s under one year for sure, right? Because that’s usually a flip situation. And that’s why flippers never <laugh>, wholesalers never really get to leverage what we’re talking about today ’cause they’re just in and out of a property and you’re on the treadmill. With what we’re talking about here is just moving it, making sure that you’re keeping these properties long enough to where these the personal property has a declining balance. So let’s say three to five years, a lot of the things that we wrote off now has basically on the books a of zero value. And those were, we considered a, a disposed asset. It doesn’t have to be considered in the recapture analysis at the end of the ti at the end of the property.

Terry:
So you’re not getting hit Now if it’s, you’re, you’re, there’s always something, there’s always that recapture that’s lingering in the background. If you are rolling into a 10 31 exchange, you don’t have to worry about recapture. Okay? The only time you really worry about recapture is if you’re not gonna do a 10 31 exchange, you’re gonna have this, this capital gains at a certain tax rate. So recapture gets hit on real property and it also gets hit on your personal property. Personal property is what we’re accelerating, okay? And that’s always hit at ordinary income tax rates. So we’re always kind of looking out for making sure we’re mitigating any recapture on the backend. But we’re, but it, the situation is this, if you’re gonna sell an exit, you’re gonna have a profit, it’s going to be taxed at a certain rate and either gonna pay it or you’re gonna have to plan for it.

Terry:
So we always suggest, hey, if it’s a pretty big capital gain, you better put it into a 10 31 exchange. If you don’t have the time or energy to seek out another property within that time lock, which is 180 days, you have to close 45 days to identify. We suggest on the next property you buy, you cost se it, you create all this new depreciation that will then offset the tax that you’ve had coming out of the, the original property. If someone says, I don’t, I’m only gonna, I’m a one and done investor, I’m not gonna be, I’m gonna hold onto this property, or if I’m gonna sell it and I’m just gonna pay the TA tax, I don’t wanna buy, you know, mess, then I would say maybe cost savings is not the right play because you have nothing to offset it on the end, if that makes sense.

Terry:
Okay, we can do a recapture analysis and someone that says, Hey Terry, we’re buying this property at this. We’re gonna be exiting in three years. We think at this price we can go into our software and actually run a recapture analysis to show the impact. But it’s usually you’re, even if there is recapture, it’s not, you know, you’re still, it’s at a lower rate if you do it correctly and you’re avoiding the higher rate if you didn’t do it. So there’s always this kind of arbitrage where you’re always still so ahead of the game as long as you’re holding that property three to five years. That’s the, that’s what we, how we advise our clients.

Charles:
Yeah, that makes perfect sense. So Terry, thank you so much for all this information today. How can our listeners learn more about you and your business core?

Terry:
Yeah, you can always reach out to me directly. I’ll just throw out my email. It’s Terry Judge, just my name@coreadvisors.net, Terry judge@coreadvisors.net. Feel free to shoot me an email, happy to do a, a no cost analysis on any of your properties, answer any questions you might have or you can hit me up on any of the social feeds. You can find me on, you know, pretty much everything and feel free to reach out.

Charles:
Well, that sounds great. Thank you so much for being on today, Terry. And I’ll put all those links into the show notes and looking forward to connecting with you here in the near future.

Terry:
Thanks, Charles. Enjoyed it, man. Have a good day.

Links and Contact Information Mentioned In The Episode:

• CORE Solutions Group

About Terry Judge

Terry Judge is the Founder and CEO of CORE Solutions Group, LLC. He is the visionary behind the brand and oversees much of the growth and strategic business planning. Terry has an extensive entrepreneurial background with over 25 years in business ownership and is one of the early adapters of engineering-based cost segregation studies and other highly specialized tax credits and incentives. He is passionate about educating people in the commercial and multi-family space on maximizing cash flow and taking full advantage of the ever-changing tax code. Terry speaks nationally and has published several white papers on the magic of cost segregation. Terry has both a tax and engineering background and, over the last 15 years, along with his team, has completed thousands of engagements that have yielded over a BILLION DOLLARS in NET TAX SAVINGS. Today, Terry and his firm, CORE Solutions Group, are blessed to work with many top accounting and real estate firms and brand-new investors who purchased their first multifamily investment property!

Terry firmly believes in giving back and supports several local charities in Detroit through its newly formed charitable arm, CORECARES.

Are You a Fan? Subscribe, Rate, Review & Share – Click Here To Learn How

What question do you always wish I would ask but I never do?

Connect with the Global Investors Show, Charles Carillo and Harborside Partners:

• Setup a FREE 30 Minute Strategy Call with Charles
• Learn How to Invest in Real Estate
• Listen To The Podcast
• Join Our Email Newsletter
• Global Investors Web Page
• Foreign Investing in US Real Estate Facebook Group
• Global Investors Facebook Page
• Global Investors Instagram
• Harborside Partners Web Page
• Harborside Partners Facebook Page
• Harborside Partners LinkedIn Page
• Harborside Partners YouTube Channel
• Harborside Partners Instagram
• Charles Carillo LinkedIn Page
• Charles Carillo Instagram
• Charles Carillo Bigger Pockets