Property Management Growth with DoorGrow DGS 314: Deduct Yourself Before you Wreck Yourself - Cost Segregation for Property Managers
What if you could take out a loan with 0% interest and invest that money for as long as you own your investment property? This is something that cost segregation can help real estate investors do.
In this episode of the #DoorGrowShow, property management growth expert Jason Hull sits down with Daniel Boyd from CSSI Services to talk about cost segregation, one of the most powerful ways to uncover hidden tax savings for property owners and managers.
You'll Learn
[03:10] How Cost Segregation Works
[08:54] Recent Changes to Depreciation Rules
[11:59] Why Real Estate Investors Should Care About Cost Segregation
[18:33] The Importance of Working with Tax Experts
Quotables"The big idea here is there's things in the property that wear out fast and there's things that that wear out slow."
"We love deductions because we want to pay as little tax as possible."
"Wouldn't it be great to take a $100,000 loan with 0 % interest, invest it for as long as you own the property?"
Resources TranscriptDan Boyd (00:00)
Wouldn't it be great to take a $100,000 loan with 0 % interest, invest it for as long as you own the property? And then when you sell the property, you give the loan amount back and you keep whatever you made on that investment.
Jason Hull (00:06)
I'm Jason Hull, CEO and founder of DoorGrow, the world's leading and most comprehensive coaching and consulting firm for long-term residential property management entrepreneurs. We have been helping people for over a decade and a half.
At DoorGrow, our mission statement is to transform property management business owners and their businesses. We want to transform the industry, eliminate the BS, build awareness, change perception, expand the market, and help the best property management entrepreneurs win. Now, let's get into the show. My guest today is Dan Boyd. We're going to talk about cost segregation, one of the most powerful ways to uncover hidden tax savings for property owners and managers.
you'll learn how to accelerate depreciation, apply repair regulations, and know when expenses can be written off immediately. These strategies can help you improve client cashflow, strengthen relationships, and stand out in the market. All right, Dan, welcome to the DoorGrow Show. Thanks so much for being here with you. So Dan, before we get into cost segregation, which is an interesting subject, that's...
Dan Boyd (01:10)
Thanks so much. Great to be here with you.
Jason Hull (01:19)
They had some changes recently, right? There's been some changes in depreciation thanks to Mr. Trump and all this stuff going on, right? The president, I think. So I'm curious what you have to say about that. But tell us, how did you get connected to this business? Give us some backstory on Dan.
Dan Boyd (01:36)
Sure, yeah, it's a little funny. I meet, you
bet, I meet people from time to time and they say, how on earth did you get into this line of work? Because it's not like anybody goes to school to work in cost segregation or at least cost segregation sales. know, tale as old as time, I knew somebody. And so I was working in the nonprofit sector. My goal was to become a superintendent. So I had gotten a doctorate in education and I was headed in the right direction. But I found out that the average superintendent lasts for about two years.
Dan Boyd (02:05)
and then they get run out of town for one reason or the other. And it's typically a very stressful two years. And so while it's a rewarding ⁓ position and the compensation is usually pretty good, I thought, why don't I just skip those two years and go into sales and consulting? And so somebody had told me, I think you'd be pretty good at this. And so I started selling cost segregation for our company. And then,
There was an opportunity, they said, you know what, we needed to improve our training and our education, and you've got the perfect background. You understand what we do, but you also come from a world of education, so why don't you join us in that capacity? And so it's been a very good fit since then.
Jason Hull (02:28)
Got it. So you didn't wake up as like a kid in elementary school saying you wanted to do cost segregation.
Dan Boyd (02:48)
Believe it or not, no, I can't even say it was on the radar, right? There was like baseball player and then commando and maybe basketball player and football player. So like cost segregation wasn't anywhere near the top of that list.
Jason Hull (02:53)
Property management business coach was not on my radar back then either, so I get it. All right, cool. So let's get into the topic. So cost segregation, how do we uncover some hidden tax savings?
Dan Boyd (03:14)
So the big idea here is there's things in a property that wear out fast and there's things in a property that wear out slow. But how do you know? And that's where we come in. So our job is to tell you with our knowledge of the IRS code and buildings, that's what makes us unique. We're very good at both of those things. ⁓ What's the value of everything in your property that wears out quickly? Once you know that, you get to write it off quickly. So let's say you buy an apartment building for a million dollars, Ordinarily, you're going to depreciate that whole building over 27 and a half years.
Well, there's components in that property that are going to last three years, five years, seven years. So shouldn't you be able to write it off sooner? The answer is yes. And that was actually there's a landmark court case that led to this. And that was the big argument is, hey, we replace some of these components every five years. You're making us wait 39 years because it's a commercial property to depreciate it. And the court ruled in their favor and said, you're right.
And so our job is to come in and really give somebody a huge deduction in the first year. Sometimes 25, 30, 40 % of the building value can be deducted as quickly as the first year.
Jason Hull (04:28)
Okay, got it. That's significant. Okay. And we love deductions because we want to pay as little tax as possible. Absolutely. Yeah. Yeah. Yeah. I love asking business owners. I say, what's the biggest expense in your business?
Dan Boyd (04:34)
We do. Absolutely. Yeah. If I have yet to meet somebody who's happy with the amount they have to pay and wouldn't reduce it if they had the chance.
Jason Hull (04:49)
And then they usually say payroll or staffing. And I say, no taxes, but then payroll. Yeah. they forget about it they don't think of it. It's like grabbing, right? Like you just assume it's there and you have to obey the laws. OK, you just move past it. It's like, well, my biggest expense is payroll because people are expensive. Well, yes, that's true. But if there's if you have deductions, right, if it's part of the tax code, you can legitimately I joke.
Dan Boyd (04:55)
Yep. And they forget about it because they don't think of it. It's like gravity, right? Like you just assume it's there and you have to obey the laws. And so you just move past it. Right. It's like, well, my biggest expense is payroll because people are expensive. Well, yes, that's true. But if there's if you have deductions, right, if it's part of the tax code, you can legitimately I joke like anybody cannot pay taxes. We help people not owe taxes.
Jason Hull (05:17)
Okay, yeah. So I was flying actually this weekend with my wife for the first time because she's working on her pilot's license. she wanted me to be in the plane with her and wanted me to experience flying with her. And so she doesn't have her license yet. So I got to sit in the back and she had her instructor next to her and they're flying. And her instructor, I was like this, you know, I was making jokes about how flying isn't.
You know, it's pretty relaxing, pretty calm most of the time. And he said, well, I said, I thought it would feel like a roller coaster. He's like, do you want it to feel like a roller coaster? I'm like, sure. And so he does some fancy eight maneuvers or whatever. But what was interesting is when gravity disappeared, when I did not feel gravity anymore, I was like, I'm missing something that I'm so used to. I don't even know that it's there, but you notice it when it's gone quite a bit.
Right? It was very noticeable to not have gravity and just be kind of sitting above my seat a little bit as we kind of dropped. And I was like, okay. So yeah, so taxes can be a little bit like gravity, I guess. Constant pressure.
Dan Boyd (06:26)
Yeah, and if all of sudden, you you were, yeah, if you were used to paying $100,000 in taxes and then all of sudden you didn't have to, you would notice that. That'd be a big deal.
Jason Hull (06:33)
Yeah, absolutely. Yeah, that would be great. All right. So what are the steps to making that happen?
Dan Boyd (06:42)
So first thing is, ⁓ assuming that this makes sense, you've got to owe taxes and you need to hold your building for at least a couple of years. And I can get into why. But ⁓ if you wanted to see, does this make sense for me, just get an estimate. So find a reputable firm to work with that does engineering-based cost segregation.
And they'll send you an estimate. And they'll say, hey, we think you're going to get somewhere between these two numbers. And that's a high and a low end. And so in general, that's 25 % of what we call the building value. So subtract land out, right? Now you're just left with the building on that lot. That's what you get to depreciate. So if you've got an $800,000 building, maybe you paid a million, land is worth $200,000, subtract that out. So you got $800,000.
And again, you'll get a range saying maybe you'll get somewhere between $180,000 up to $300,000 in depreciation. If you like the way that looks, the fee makes sense, and you owe taxes, and you can use it this year, then you proceed with that cost segregation study. And usually, I would say with our firm within two to four weeks, we give somebody a report. So we make it very simple. That report justifies the big deduction. So if somebody ever got audited, which is a pretty rare occurrence anyway, they would be able to explain, here's why we did this. This is legitimate. We worked with a firm that has real engineers that did this.
And it gives the CPA what they need. know, CPA is not just going to say, okay, yeah, I'm going to give you a $200,000 deduction for fun. They have to feel comfortable because their signature is going on it. So it's our report that demonstrates to the CPA and to the IRS, this is a legitimate deduction within the tax code and this will stand up to an audit.
Jason Hull (08:25)
Cool, because we got to make sure that IRS is okay with this. I don't really care if the IRS is happy, but I don't want to be on their bad side either. I just want them to leave me alone. That's really, I think, the goal, right? Got it. Okay. So your company helps with this, right? CSSI. Yes. Okay, got it.
Dan Boyd (08:28)
Absolutely. If they're not happy, nobody's happy. Yeah, yeah, absolutely. Yeah, as long as they're well, I just want them to be happy with you. We're not unhappy with you.
Yes.
Jason Hull (08:53)
Okay, so, are there different rules? I had mentioned at the beginning, maybe, I don't know, but I thought some rules that kind of change with depreciation and how it works, just recently.
Dan Boyd (09:05)
They did. Yeah. So in ⁓ this most recent one big beautiful bill, there was a change that brought back what's called 100 percent bonus depreciation. So what does that mean? There's some misunderstandings and sometimes people assume that means you can deduct 100 percent of the building value. That's not the case. So I said there's stuff in a property that wears out fast and there's stuff that wears out slow. So the IRS has categories for that that they call useful lives. So there's a probably the most common categories that ⁓ Property managers are gonna need to be aware of are the five-year useful life and that's roughly the stuff inside the units and then there's the 15-year useful life
That's the site improvement. So that's a parking lot. That's landscaping that signage. That's a fence. That's a pool Those kind of things the things on the common ground, right? so what that means is if something has a five-year useful life, you depreciate it over five years. So automatically, that's faster than 27 and a half. So that's accelerated depreciation, because we accelerated it from 27 and a half years to five years, and from 27 and a half to 15 years. Bonus depreciation lights a fire underneath those two categories. And so rather than waiting five years or 15 years, you get some percent of that value right now.
So if we're in 100 % bonus year, it means you get 100 % of the five-year value and 100 % of the 15-year value right away. And so ⁓ if we just say, you know what, cabinets, countertops, crown molding, that kind of thing, swimming pools, parking lots, that's all gonna be accelerated.
So if you had $500,000 in those two categories, rather than waiting five years or 15 years to get that money, you bonus depreciate it and get all of it this year. ⁓
We just came out of what's called a sun setting bonus period. so from 2022 to 20, I'm sorry, from 2017 to 2022, people got 100 % bonus depreciation. So if your property was placed in service as a rental in those years, it gets 100 % bonus period. Doesn't matter when you do the cost segregation. But in 2023, it started to go down 20%.
So 2023 was an 80 % bonus year. 2024 was a 60 % bonus year. And the first 19 days of 2025 are a 40 % bonus year. So 100 % bonus depreciation kicks in on inauguration day. So they made it retroactive to the inauguration day. So if you bought
Dan Boyd (11:27)
2023 was an 80 % bonus year, 2024 was a 60 % bonus year, and the first 19 days of 2025 are a 40 % bonus year. So 100 % bonus depreciation kicks in on Inauguration Day. So they made it retroactive to the Inauguration Day. So if you bought a property and placed it in service on January 20th or later, you get 100 % bonus depreciation.
Jason Hull (11:54)
Cool. Okay. Right. So thank you, Donald. All right. So why should investors that are wanting to invest more care about cost segregation? Why should they be paying attention to this? Because I think this plays into their strategy, but some may not get it.
Dan Boyd (11:56)
Yeah.
Great question.
So the time value of money, if I could give you $100 today or $1 a day for the next 100 years, it's worth way more to you to get that money today because you can invest it, right? There's no inflation, yada, yada, yada. So the more tax deductions or reductions you can get early on, the more you're able to free up your capital and deploy it to grow your portfolio, right?
to repair your property, to increase rent, to pay down debt. And that money is worth a lot more to you today. So if you can get 25 % of your building value back now, rather than in a quarter century, why wouldn't you do that?
Jason Hull (12:56)
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to grow it so you can have more of it later, right? Is kind of the idea.
Dan Boyd (13:59)
Yeah, absolutely. ⁓ If you owe taxes right now and you own rental property, as long as you're going to hold that property for even just two or three years, you are going to make more money by taking more depreciation, reducing your tax burden, freeing up capital to reinvest and make some rate of return. And so as long as you can invest that money and earn a return, then you're going to benefit from doing this.
Jason Hull (14:06)
Yeah, same reason I file an extension every year. I wanna delay the IRS having access to any of the funds so that I can do more stuff with it before they get their hands on it, right? So more money faster and...
Dan Boyd (14:38)
There you go.
Jason Hull (14:42)
IRS later. Yeah, that's the ideal goal. Cool. So how do they make sure that they're making good decisions around all of this? This is where a company like CSSI comes in, I would imagine.
Dan Boyd (14:54)
Yes, so we see ourselves as consultants. so in fact, just probably an hour ago, I was on the phone with somebody who couldn't benefit from a cost segregation. And it was really because he didn't owe enough in taxes. And I said, you just don't need this deduction right now because you don't owe anything. And so you'll be paying for the service to get a huge deduction. And that's great. But it only makes sense to have a big deduction if you have a lot of income. And so our job is to look at somebody's scenario and say, here's what we think your deduction will be, let's match that up with what's your tax liability? Do you owe a lot this year? Or maybe are you going to owe next year? Should you wait? And then how long are you going to own this property? Let's do the math and figure out, does this investment make sense? And so that's kind of the big one. My two litmus tests are, do you owe taxes? And are you going to own this property long enough to invest this? And the reason for that is when you take depreciation on a property,
That's kind of the big one. My two litmus tests are, you owe taxes? And are you going to own this property long enough to invest this? And the reason for that is when you take depreciation on a property, whatever you take out, you owe back when you sell the property. That's called recapture. And so oftentimes people are afraid of that. But I think the best way to think of that is like a loan, right? The IRS loans you that depreciation. And then when you sell the property, you owe the depreciation back. But they don't charge you interest on that. And so Wouldn't it be great to take a $100,000 loan with 0 % interest, invest it for as long as you own the property?
And then when you sell the property, you give the loan amount back and you keep whatever you made on that investment.
Jason Hull (16:15)
Okay, so how long is long enough to own the property then?
Dan Boyd (16:25)
It depends on your rate of return. And so if I give somebody, let's say, $100,000, and they can make 7.5%, as long as they pay less than $7,500 to get the cost segregation study, they're going to make money. And so that's usually how I do that math. And it's different for everybody. And sometimes they're not sure. And so I'll kind of walk them through. my tendency is to be a little cautious with it and say, if you're not sure, I don't want you to get into a situation where you're going end up owing more than you got in terms of your reduction in taxes and any benefit out of this. But I'd say a very comfortable break-even period is three years.
Jason Hull (17:07)
Okay, got it. Okay, so if they own it for at least three years, then it may make sense. They should probably be considering it. Especially if they owe taxes and they haven't figured out how to zero those out.
Dan Boyd (17:12)
Yeah, absolutely. And if they plan to.
Yeah, exactly. Because once you pay taxes, money's gone forever. You can't get it back.
No, not at all. And if you, you know, if people are worried like, I don't want the depreciation, I don't want the depreciation recapture in the future. It's like, okay, well really what you're saying is you'd rather have that money in three years when you sell the property than have it now. And if that's true, that's fine. But then you're missing out three years of the time value of money of money. Right.
And if you're a decent investor, you could probably do something with that money, like grow it over the next three years.
Dan Boyd (17:55)
Yeah, absolutely. In that example I used, you know, getting $100,000 in tax savings back for 7,500, it may cost less than 7,500.
Jason Hull (18:05)
So it could be a no-brainer, but you'll help them see that, which makes it probably a very easy product to sell to the right person.
Dan Boyd (18:08)
Yeah, I try not to make it too complicated. We are in the tax world, right? It's tax and real estate, so it's kind of funky. But I just try to keep it high level and let people know, hey, here's what you're to deduct. So in other words, here's how much income you won't owe taxes on. And mathematically, does that make sense for you? And if so, let's talk about the next steps.
Jason Hull (18:33)
So what are the other big questions that people ask you when you are selling these services?
Dan Boyd (18:40)
Great question. So the big one is, I going to get in trouble with the IRS? The answer there is no. So this is no more risky than even just, let's say, cost segregation. So our company's done in the ballpark of 55,000 studies. And we have not seen that this triggers an audit. And when the IRS asks to take a second look, they're usually just as part of due diligence. And so they don't reject the results. They don't have penalties or anything like that. They're usually just, you that's part of due diligence. And so they don't reject the results. They don't have penalties or anything like that. So it's pretty rare that somebody would even get an audit when they have a cost segregation done. The other, I would say like a typical safety concern, right?
Is people say, well, that's my CPA's job, right? They do that. a CPA, kind of depending on who your CPA is and how they operate. You might say it's not really their job to look for business strategies for you, right? Ways that you can deploy capital and invest it.
Dan Boyd (19:39)
They're preparing your taxes, right? That's really what they're allowed to do. So I think people often make that mistake of thinking that their CPA is their business coach. And plain and simple, they are not, unless you're paying them a lot of money to do that. And so we work with a lot of CPAs who do that type of consulting and work, and they refer their clients to us, because this is not something a CPA can do, because you've got to have an engineering background. And so unless your CPA went to school first to be an engineer and then a CPA. This is not in their wheelhouse. if their firm offers it, they're probably just working with a firm like ours and saying, OK, we'll pay for the study, and then we'll give it or sell it to our client.
Jason Hull (20:29)
They are not trying to do anything related to lowering your tax dollars. yeah. so we've been, and I have been able to wipe out our taxes just by getting really good tax advice, but it's never from our CPA or from our accountant. Yeah. So I would recommend anybody listening get.
Dan Boyd (20:47)
Yeah, as you would expect it to be.
Jason Hull (20:50)
If you have a CPA, awesome. And I highly recommend you go, if you're a business owner, get a profit first certified professional. I think that's a good early stage step to making sure you have financial health in your business. They're going to take things a little bit beyond just standard accounting, but go find a tax expert that's going to help you with tax stuff. And then you're going to need probably experts like CSSI. We used a special company that assessed our own property so we could rent it to ourselves using the Augustus rule and stuff like this. So there's niche companies that you can use that will help find more money for you.
Dan Boyd (21:29)
It's, know, in ⁓ any line of work, there's specialties. And so, you know, in medicine, there's specialists, right? You've got your general practitioner, and they see you for normal things, right? You go there when you have a cold or for an annual checkup. But when something serious is going on, you always go to a specialist. And taxes are the same way. And so I'd say, you somebody's CPA is like their family doctor, and they should see that family doctor on a regular basis.
But we're the specialists. I would say we're probably most like a radiologist, right? Because we see things that other people don't see in terms of tax savings. And so that's our role. We don't prepare taxes. We prepare reports that help people not owe a lot of taxes.
Jason Hull (22:10)
Right. And there's a lot of different specialists out there and we've leveraged several financially and I'm sure there's more we're not even aware of that, you know, as Sarah and I grow and learn in our financial health, you know, that we will utilize. these are these are things that I would love everybody listening to be aware of. So I'm glad to have you here today. So did we miss anything that you think would be important for the audience to know about cost segregation? So,
Dan Boyd (22:36)
So, you know, why would like to your audience, why does this matter? And I'd say, if your clients don't hear about it from you, they're going to wonder why they're going to think my like, I trust this person with real estate, I would have expected them to know about this. And so
Jason Hull (22:39)
Yeah.
Ooh, yeah.
them to know about this. Yeah, they are expecting you to be the investment specialist. That's where you set yourself head and shoulders above just being a property manager where you're like, you know, a commoditized service. Then you're at that next rung on the ladder where you're an advisor, you're a consultant, they appreciate you. so, yeah, property managers could be leveraging CSSI. How can they leverage you guys? So a really easy way to get in touch with us is
Dan Boyd (22:56)
Yes.
Yep. So a really easy way to get in touch with us is you
can just go to our website and there's a calculator there. And I think actually this is what would be even better. I think we have a landing page, especially for DoorGrow listeners. So people can go there and you can get information about a property. if you want information for a client, you could go there and you could submit a request and we will send you an estimate for that client, that property. With a discount for DoorGrow listeners. so, ⁓ yeah, there we go. So that's cssiservices.com slash DoorGrow. And ⁓ that's probably the best way, right? There's some basic information you can put in about the property and that will go to me and to one of our other reps, George Taylor. And we'll make sure to walk you through it, help you understand how you can talk to your clients about this so that you come across as the expert, right?
We wanna, we don't need to take center stage. We wanna help you. And we'll make sure to walk you through it, help you understand how you can talk to your clients about this so that you come across as the expert, right? We don't need to take center stage. We want to help you be the be the expert and really deliver the great news to your clients. And again, if they hear this from you, they're going to say, that's why I work with this person. I work with them because they're looking out for me. They have my best interest in mind. And if they don't hear from you, then they'll say, wow, I wonder why, you know, why didn't they know about this? Or if they did know about it, why didn't they tell me?
Jason Hull (24:33)
Yeah, they're expecting you to be the investment specialist and it's a painful realization for them when they get advice outside on their property. That's a good idea and you didn't give it to them. So you want to be the one that delivers this good news. So ⁓ yeah, so that website address is C as in Charlie, S-S-I-S-E-R-V-I-C-E-S. So CSSI services dot com slash DoorGrow.
Dan Boyd (24:48)
Absolutely.
Dan Boyd (25:08)
And is that DoorGrow just ⁓ all one word? OK, gotcha. Yeah. So and I'd say, you know, doesn't there's no cost to getting the estimate to determine, hey, how much is how much could this save somebody in taxes? And so really no harm to getting that estimate and presenting it to somebody. And that way, even if they don't need it this year, they have that for decision making purposes in the future. That's part of tax planning to say, OK, this year, my taxes are taken care of. But next year might be a really big tax.
Jason Hull (25:18)
Yes. Got it. And so the property manager could initiate this process for each of their properties. They could. Okay, got it. Very cool. Well, Dan, I appreciate you coming on the show. Glad we have this cool DoorGrow page. That was a nice surprise set up.
Jason Hull (25:58)
Anything else you want to
Dan Boyd (26:00)
I don't think so, other than I hope we can help all of your audience save their clients tens and hundreds of thousands of dollars in taxes this year, next year and beyond so that they've got more money to buy more properties and just continue to grow their portfolios.
Jason Hull (26:14)
Yeah, that would be some nice surprises. I don't think anybody's clients would complain about that. So, all right. Appreciate you being here on the DoorGrow show, Dan. All right. So if you've ever felt stuck or stagnant in your property management business and you want to take it to the next level, reach out to us at DoorGrow dot com. Also join our free Facebook community. It is just for property management business owners at DoorGrow club dot com. And if you would like to get the best ideas in property management, join our newsletter.
Dan Boyd (26:19)
I don't think so.
You bet. Thank you, Jason.
Jason Hull (26:43)
by going to doorgrow.com slash subscribe. And if you found this episode even a little bit helpful, don't forget to subscribe and leave us a review or a positive comment on whatever channel that you saw or heard this on, we'd really appreciate it. And until next time, remember the slowest path to growth is to do it alone. So let's grow together. Bye everyone.