314. Depreciation 101: How to Use It the Right Way to Save Thousands in Taxes

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Feb 25, 2025

Dive into the essential world of depreciation in real estate investing. Discover how to maximize tax savings through strategies like cost segregation and bonus depreciation. Learn about the potential pitfalls of depreciation recapture and how to strategically plan to minimize its impact. Explore the lazy 1031 exchange, a clever way to defer taxes without the hassle of full exchanges. This engaging discussion equips investors with valuable insights to optimize their tax positions and boost their cash flow.

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INSIGHT

Depreciation Explained

Depreciation is a deduction for the deterioration of physical assets, like buildings, over time.
It's a non-cash expense, meaning it reduces taxable income without directly impacting cash flow.

ADVICE

Depreciation Types and Cost Segregation

Residential properties depreciate over 27.5 years, while commercial properties depreciate over 39 years, excluding land value.
Use a cost segregation study to identify components eligible for accelerated depreciation (5, 7, or 15 years).

ADVICE

Cost Segregation Study Value

Consider a cost segregation study if you have passive losses to offset passive gains (lazy 1031 exchange).
It's valuable if you have non-passive losses (real estate professional status or short-term rental loophole).

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In this episode, Ryan and Thomas take a deep dive into depreciation, one of the most powerful tax-saving tools available to real estate investors. They break down how depreciation works, how to accelerate it, and strategies to minimize depreciation recapture when selling your properties. They discuss: - Depreciation 101 – What it is, how it works, and why it matters for investors. - Cost Segregation & Bonus Depreciation – How to front-load tax savings and boost cash flow. - Depreciation Recapture – The “dark side” of depreciation and how to avoid unnecessary tax hits. - Strategic Planning – When a cost segregation study makes sense and how to use depreciation to offset W-2 or passive income. - The Lazy 1031 Exchange – A little-known strategy to defer taxes without doing a full 1031 exchange. - And more! To become a client, request a consultation from Hall CPA, PLLC at go.therealestatecpa.com/3KSEev6 Are You Ready for the 2025 Tax Changes? Click HERE to Access the FREE Tracker: go.therealestatecpa.com/4gDayj7 Join the Tax Smart Insiders Community: go.therealestatecpa.com/3Xx1Cpd Check out Thomas's new YouTube channel: www.youtube.com/@thomascastelli The Tax Smart Real Estate Investors podcast is for general information purposes only and is not intended to provide, and should not be relied on for, tax, legal, or accounting advice. Information on the podcast may not constitute the most up-to-date legal or other information. No reader, user, or listener of this podcast should act or refrain from acting on the basis of information on this podcast without first seeking legal and tax advice from counsel in the relevant jurisdiction. Only your individual attorney and tax advisor can provide assurances that the information contained herein – and your interpretation of it – is applicable or appropriate to your particular situation. Use of, and access to, this podcast or any of the links or resources contained or mentioned within the podcast show and show notes do not create a relationship between the reader, user, or listener and podcast hosts, contributors, or guests.