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Tax Credits & Incentives for Real Estate Investors Transcript

Eric Tuthill, CPA: All right, folks, welcome to today’s webinar.

Tax credits and incentives for real estate investors, and my name is Eric Tuthill. I’m a CPA and I’m tax director here at corporate tax advisors and I’m also here with Mr. Mark Weber, senior cost segregation manager and we’re going to talk about some of those tax credits and incentives for real estate investors that don’t normally get utilized.
In in, not just the ones that were kind of all familiar with the section 1031 exchanges and some of those other, you know, like just general mortgage interest deduction.
Of depreciation deductions.

We’re going to get down to the nitty gritty and do a real deep dive in how we can save that extra extra money for real estate investors.
So first I’d like to talk a little bit about how we’re going to organize this presentation.

So we’re going to look at this from both a single and multifamily residential investor perspective. So buying smaller level properties and we’re going to look at some specific examples and we’re going to look for especially fora general residential.

We’re going to look at about 1/2 a million dollar example for that one, and then we’re also going to look at commercial real estate investors and we’re going to look at, say, a $10 million example.

We’re going to see how these property acquisitions can save you huge money in taxes.
We’re going to use real life real world percentages to kind of demonstrate how these have worked in the past, but we’re going to use big hole numbers here just to kind of give you a better idea, a better ballpark of what these deductions really look like.

So one of the first things that we’re going to look at is going to be cost segregation and you can see here we’ve got a calculation here or an estimated five year tax savings over and above what you would get if say you were.

If, say, you were taking normal deductions, how much more deductions you could get? I mean, and how much liability offset you could get and in this case, we calculated a tax savings of $50,444.

On an acquired half, $1,000,000 property, we’ll also look at some of these other credits that are available here, especially since the beginning with the Inflation Reduction Act of 2022.

Some of these additional energy savings projects that you can put onto your residential buildings that can save about 30% of any kind of installation cost.
So in our half a million dollar example, we’re going to look at say ITC solar panel installation.

I know that’s a little steep there for a solar panel.

Insulation. Most of those are really going for around 30 K, but like I said, these are about big round numbers here.

But essentially, that’s a 30% tax savings there. So you can get a $30,000 that would go in a tribute to any installation cost that you might have with that solar panel. And then we’re going to talk a little bit about like, say, some of these.

Other parts of that particular code say geothermal heat pump installation or just general heat pump installation.

And how those can save massive amounts of money and some of the other HVAC kind of components that you can put in there and let’s just say for instance we had a 30K geothermal heat pump installation that would save approximately $9000 in overall tax Li.

So diving into the commercial real estate investors, we’re going to look at a $10 million example that these obviously can range anywhere from 10 million to $100 million. I think one of the properties that we looked at and we assembled some of these percentages.

From was a $60 million property for example. But in this case, if we’re looking at $10 million, a big round Number, we could save and essentially an additional $1.14 million in tax liability offset. So tax liability, not tax deductions.

Right. Tax liability differences if we were to enable a cost segregation study on a specific property like that, we’ll also dive into section 179 D.

And how how? I guess would say how easy it is to qualify here for new construction, because we’re comparing ourselves to a 2007 standard and what that really looks like because there’s been obviously been a lot of innovation since 2007, I think that was 18 years ago.

But if we can save a 50% efficiency difference in some of these, these new construction efforts. And we save that much in energy in comparison to that 2007, we could. It would result in $169,500 tax liability reduction.

Once again, that’s not a tax deduction. That is a tax liability reduction.

So that is the dollar for dollar amount that you would save?

In any new improvement, say to you energy efficiency, if we’re looking at doing a light installation project or an HVAC replacement and we were able to save some additional energy values there.

We could. That could result in a savings of $101,820.

In this particular example, we’ll also look at how the integration of some of these other items say the solar panel installation, if we were to do something in the range of like 300K on a big commercial unit, how that could save $90,000 in taxes.

Or essentially help pay for that installation to a large degree. Same thing there with heat pump installation which a lot of lot of times especially on these big commercial properties.

You might have heat pump installation or you might have. I would say waste energy recovery property or or something of that nature when you’re trying to save overall energy bills and you have to do the installation anyway.

This is a great aspect here to kind of maximize your credit and make sure that you’re saving as much money as possible.

So in this case, we’re looking at, say, a heat pump installation with a a good energy storage aspect to it. That would save about $150,000 in overall, tax liability for that particular property.

Alright, so like I said before, we’re gonna really focus in three directions here:
1. We’re gonna look at the tax deductions for cost segregation and that’s most more specifically how we can accelerate depreciation to offset other income that we might have throughout our portfolio.

2. Same thing here with tax deductions as well. That section 179 D energy efficient building deduction.

3. That’s out there as well as the investment tax credit and how that’s going to work with everything?

So with that being said, I’m going to go ahead and hand it off over here to Mark, and he’s going to go over cost segregation and how it works and how you can utilize that to its maximum potential and offset those costs for your property.

Mark Woeber:
Yeah. Thanks a lot, Eric.

I, like Eric said.

My name is Mark Weber, lead Cta’s cost seg practice, and, you know, just kind of, you know, cost segregation. It’s just a really good tax strategy that really kind of allows you to charge your real estate cash flow into those earlier years of ownership, right.

And so, we’ll, you know, just kind of start at the top.

What is cost seg? So typically the IRS will, you know, lock rental properties into long depreciation timelines, so that’s 27 years for residential property and 39 years for non residential property.

And you know you’re getting your investment back, but it’s pretty slow.

And So what cost segregation does is we flip that by breaking your property into assets with shorter lives like 5 or 15 year life classes. So you’re looking at appliances, flooring, site improvements and so the way that we do that is we use the modified accelerated cost recovery system or makers. Which is the IRS’s depreciation system.

Using that, we accelerate those deductions and another thing to keep in mind here is bonus depreciation.

So here in 2025, bonus depreciation is at 40%. So whatever a cost segregation study finds, you are able to take 40% of that deduction in the first year, potentially 100% soon, hopefully with some legislation changes. And you know that makes this even more attractive.

But how do we kind of get this thing going?

So you know, it starts with the preliminary analysis.

You tell us about your property, the cost, what kind of building it is, any construction details and we estimate how much that we can give back to you, you know, reclassifying from that long term bucket into those five and 15 year assets. So you know are there reno fixtures, is there landscaping, asphalt and concrete paving.
And so, you know, those are really kind of the things that we look for just to see if a study might even be worth your while.

Next step is we’re going hands on. So we send out an engineer for an onsite inspection.

So what they will do is essentially they’ll walk the property, they’ll take measurements, photographs, catalog, everything: You know your countertops, your carpet, your lighting. Basically all they’re trying to do is sort what is sort, what is structural from what’s separable. So you know, very detailed work.

And then after that, it’s about building asset classes, so we use invoices, blueprints and site data to reallocate costs into the correct bucket. So that’s five years for personal property.

Think you know like your countertops, your cabinetry, decorative lighting and then 15 years for land improvement. So that’s your asphalt and concrete paving. That’s your sidewalks. That’s your storm drainage. The list goes on.

And so, you know, this is a very precise study that definitely takes a lot of work, but it’s a great way to turn those slow tax breaks into really fast money.

And so I guess go ahead and go to that next slide, Eric.

A $500,000 Real Estate Investment Example

Yeah. So first up, we’ve got a $500,000 residential rental. So, you know, let’s think like a duplex. And so right off the bat we segregate 20% of the basis to land. Since land is not a depreciable asset, we cannot include it in the study. So for this example, we’re saying that the land cost $100,000 and that leaves $400,000 left for the study.

So if we take a look here without cost segregation, just normal straight line depreciation over 27 1/2 years, assuming a mid month convention in year one, you’re looking at $19,939 in year one and then 14,545 yearly, which is going to translate to a little bit over $72,000 / 5 years, you know which is good, but you know it’s pretty, it’s pretty slow, right?

And so let’s go look at that after we do a cost SEG study. So, you know, let’s say we came in, we said, hey, we think we can get 20 to 30% reclassified to shorter life property engineer goes out to the site, they find high end appliances. They find, you know, decorative lighting, flooring. You know, even entertainment systems, the list goes on, right?

And so after the study, we find that $286,615 is gonna stay in the overall structure of the building that 27 1/2 year bucket. So that’s gonna be your walls, your roof, your door frames and then we jump down there to the 15 year land improvement bucket, so that’s $76,525. And so, you know, think parking lot think fencing, think driveway gates. You know, swimming pools the the list kind of goes on anything that’s gonna improve that property.

And then jumping down into your five year personal property, we reclassified $36,861. So that’s your appliances and your removable fixtures inside the building.
And so kind of taking a peek at this, you know, with 40% bonus depreciation, you’re looking to deduct about 30,610 of your 15 year in the first year and then $14,745 from 5 year and then?

That’s about $45,000 in year one, plus your regular depreciation. Don’t forget we’re still taking that 27 a half year depreciation every year.
And so that’s about triple, you know, the 13,939 without the Cost Seg study. And so, you know, over over five years at 30%, that’s about 50 grand in tax savings versus a little bit under $22,000.

And so, you know, let’s say we get some legislation passed this year and we get back to 100% bonus. Then you’re looking at, you know, almost $115,000 up front, which is you know big when we’re looking at a building with 400,000 in bases.

So yeah, you know, just kind of backing up what I said, you know, so we’re looking at everything under current legislation on the left side.
So year one that’s with bonus depreciation as we trickle on down, you’re looking at a total depreciation deduction of about 240 grand.

And so let’s go ahead and let’s assume a 30% tax rate. You know, then you’re looking at $50,000.
So you know, that’s just standard.

That’s where we sit right now at 40%. No. Alright, Eric, go ahead and go to that next slide.

Cost Segregation’s Impact on a $10m Property

So now let’s look at a property that’s a lot bigger.

This is, you know, a $10 million commercial property. So let’s say, you know, an office building perhaps.
Or maybe you know an auto dealership or you know, anything like that.

So same rule applies, right? We’re going to take 20% of the building basis and we’re going to allocate that to land. So that leaves us with $8 million to separate over our three buckets. So you know, looking at this, you know, year one through year five, you’re looking at roughly 2 100,000 straight line depreciation.
Which is going to equate to about $1,000,000 in deductions over five years. You know, like we said, good, but slow.

So let’s say this client likes to do a cost seg study. So using this example, we were able to reclassify about 4.6 million into the 39 year. The structural core of the building a million and a half goes to 15 year side improvement. So again, you know, think about your asphalt and concrete paving your storm drain. As your parking lot lighting and then about one point a little less than 1.8 million is going to hit five year. So you know your fixtures, your equipment, your you know your flooring, your trim, the list goes on.

And so looking again, you know, at 40% bonus depreciation, you’re going to get 634,000 for 15 year and 710,000 from 5 years. So that’s about $1.3 million in year one. You know, in over five years that’s almost four and a half million. And which is which is huge.

And so you know which you’ll see this on the next slide. I mean that equates to over $1,000,000 in tax savings just at the 30 at 30%. So assuming a 30% tax rate, so which is over $1,000,000 more than you know what it would be without and I mean if we even go up. To 100%. Then we’re looking at, you know, almost 3.5.

So you know the differences in doing a Causse X study and not are are pretty massive and you know, just going to that next slide, Eric, you know, again, it just kind of shows what we’ve been talking about and just how massive this can really be. And then you know, over the estimated five year tax tax savings is just massive to what it could be.

You know, if you elect to not do a cost SEG study and so you know, we really wanted to show these two examples just to say hey. You don’t need a super expensive building for a cost segregation to pay off. Typically we wanna see a building with at least $250,000 in basis.

And so, you know, anything above that. We’re really confident that a cost segregation study would be good for you. And so, you know, these two examples were just to show, hey, you know, you don’t need, you know, this big nice new building you can do any building at all. Over $250,000 would be a great candidate for a cost SEG study.

And so that’s, you know, the basic insurance and outs of cost seg. Just a really brief overview. And with that Eric, I’ll throw it back to you.

Eric Tuthill, CPA:
I’m gonna go ahead and just deep dive right into the next deduction that we were talking about.

The 179D Deduction’s Role

And that’s gonna be the section 179 D deduction.
And I’m gonna go a little bit over how that section 179 D deduction actually works, right? So this is a deduction for commercial energy efficient building.

So when I say commercial, those can include multi family as long as it’s greater than 4 stories. So if you’ve got an apartment complex, that’s a that’s a little bit higher than some of the like than a duplex or you know, just like a a kind of smaller like or an extended single family kind of unit.

You essentially can qualify for this specific tax deduction, right? And you can benefit from this deduction in up to $5.65 per square foot in 2024.
Now there are some parameters there you do have to meet this prevailing wage and apprenticeship requirement. And if you do so, then you can get. You can obviously maximize your total deduction that you can get here as I said before.

This is a comparison to a 2007 standard. 18 years have transpired since 2007. So a lot of technological efficiencies are out there, LED lighting, HVAC.
A lot of things have come into play that really that really save a lot of demonstrable energy efficiencies. And and section 179 D is really going to be in these three areas, right?

So it’s going to be improvements that you make to either HVAC, lighting or just building envelopes. So you change out the windows with more energy efficient windows. They can possibly qualify for this specific deduction, right?

And when you do it, essentially you’re just. You just have to make it to where you’re over 25% of that 2007 model, right?
And then you get this this huge deduction. Which is available to you as a as a building owner, right?

And as I mentioned before, you know there is a bonus deduction of five times to get that maximum. That $5.65 you have to meet.
Certain requirements and you can get there, you know fairly easily. And I’ll go over kind of how you can get there. You do have to do a couple of things with your contractors or subcontractors in order to ensure that you get meet those parameters, however you can it’s very likely that you can meet.

It’s a lot more likelier than most people think or assume, especially when we talk about prevailing wage. And I’ll go over that in a little bit more detail later.
The other thing too is this deduction resets every every years. If you own the building right?

So if you do any kind of energy efficiency upgrade and you’ve already taken the 179 D deduction essentially 3 years, the the clock will start over again.
And you can take another section 179 D deduction. The I would say one of the bigger differences between this one and cost segregation is it requires a licensed engineering professional.

So that’s going to be a P/E or grader. You know, whereas with cost segregation you you just really need a qualified individual that’s familiar with job costing to a large degree in order to be able to ensure you get the deduction. However, you know in this case you. Have to it requires overall modeling. So you have to get out specific software and things like that and compare that to that ASHRAE 2007 standard and demonstrate that you are meeting these efficiencies.

So as I mentioned before, prevailing wage and apprenticeship, it’s actually a lot easier than people think to get to those parameters. And this is just a little bit of an example here to an aside that I have here. This is from the from the the Department of Labor’s website here and this is just an example of what prevailing wage and apprenticeship. I mean, what prevailing wage looks like in a you would say a rural Texas community?

I would also say too, you know a lot of these these these surveys that are done are years and years old. So you’re still also comparing them to year old standard like. Very far back standards when you’re trying to do this comparison of on prevailing wage. So it’s a lot easier than most people think to meet these parameters. Like you can see, it’s just mostly minimum wage here for this rural community.

So meeting that prevailing wage is a little bit easier than people generally think. But for building owners, it’s a little bit harder because you have to do a little bit more at the outset of any kind of energy efficiency project that you do.

And that requires you to obtain essentially kind of payroll data to ensure that you’re meeting the parameters that the IRS requires here for that.
So a lot of times if you are getting into something like that, you are doing an energy efficiency project. You can still qualify here without necessarily meeting these prevailing wage and apprenticeship standards. The the bonus is just so good that it makes sense to have this in the contracts. That you do with the with the subcontractors and contractors that they provide you this particular data. So that way you can maximize your overall deduction, right?

So getting that into your contract at the forefront is usually pretty good that they will provide you with these payroll reports.
It’s a little bit harder.

Obviously there’s a commercial aspect there. Nobody really wants to hand over their payroll records, especially if they’re charging a little bit more above and beyond. Their their general labor costs. But if you can get that into your in into your contract.

That’s usually pretty good, right? I also say too, you know there’s an apprenticeship aspect to this, and since most of these improvements are generally to like HVAC and lighting. So you have electrical and you have, you know, air conditioning specialists.

There’s, there’s a lot of apprenticeship that is used in these particular professions, so hitting that apprenticeship marker is not as hard as people think. You just have to. You just have to be able to procure these particular records and if not, there are some ways to address it. From a backwards perspective. There they can hopefully hopefully meet the merits, and especially when you’re looking at the five times bonus rate, is it worth it to get there? There are some. There are some things that you can essentially pay back if you if you got to that component of it.

But essentially, what what you know, we would need to evaluate whether or not it got to a prevailing wage or apprenticeship. We would just need, you know, some payroll records in order to ascertain what we would need to do to fix that, right. If there is any issues. Underlying that. And I will also say to you, we’re going to talk a little bit more here about investment tax credits and the investment tax credits.

It’s important to note that they have a one MW exception. Most buildings, even the commercial buildings, they’re really not going to meet that one MW energy production levels. If they do, then you do have to meet those prevailing wage and apprenticeship standards. But most of them will. Not most of these solar installations will not, right? So getting qualified there and getting that maximum 30% is actually a lot easier. You’re there.

Especially when we’re talking about the ITC credits in particular, right? OK. So a little bit about how the deductions look from a section 179 D perspective, you can see right here there’s just a massive difference between meeting the prevailing wage and apprenticeship requirements and not beating the prevailing wage and apprenticeship requirements. I mean, it’s a five times bonus, right? So you can get $0.58 if we meet that 25% threshold and I’ll show what that looks like in some charts.

Here you know, and what averages kind of look like throughout the United States and and what those deductions really overall look like. Like if you were able to meet these parameters, but you know the majority of buildings, especially like new construction or you know a lot of energy improvements, you can you can say, especially if there’s some lighting improvements that are done at the same time, say you did H. And you did lighting there. You’re probably going to get efficiency ratings here around 35% level, right?

So that’s going to be more likely what you’re going to see here from any kind of improvements that you do. If you’re doing brand new construction, you’re probably. I mean it’s it’s highly likely that you hit these 50% thresholds.

Right. And that’s because you you have just installed a brand new unit there that’s gonna have like great LED lighting and all that other stuff you’re gonna be doing some more of the top tier stuff in there. Or I should say the newer stuff which is gonna meet those energy parameters anyway, right from manufacturer’s perspective? So you’re probably gonna hit some of these. Some of these higher rates here.

And so this is 2025 essentially, if it’s placed into service in 2025, this is this is what your deduction level would look like at the top end, right? So I said 565 and four. That was obviously the 2024 amount here, but it would be $5.81 here if it’s placed into service in 2025. So just to give you guys an idea of what it would look like if, say, we had this $10 million property and that was 100,000 square foot of of of a total property that was placed in service and it was brand new construction you know. We’d be looking at liability reductions here of the of like 169,500. That was the number that was quoted up above earlier right here.

If it was placed in service in 2024, that would be our overall liability reduction our total. Deduction that we would have in that case would be 500. $5000 of total deductions. And then if we did, say, just an energy improvement and we met the 30% efficiency threshold, we’d be looking more in the range of $101,820 liability reduction. That’s at the effective tax rate of. 30% our total deduction that we would have in that case if we met that PWA standard was 33139 thousand, $400. One thing to talk about real quick on the prevailing wage.

Apprenticeship there was a grandfathered exception there. So if the project started prior to January 29th, 2023, essentially you can still get this level without necessarily meeting all the prevailing wage and apprenticeship standards. So it just had to have started prior to that date the the actual work had to commence prior to that date of January 29th, 2023. So you can still probably get through this to this total PWA without necessarily meeting all the parameters.

Having all the documentation for to to get that five times bonus rate. So this is just a a chart here of you know, I mean I know a lot of folks here really liked ChatGPT. I like to use ChatGPT every now and then. So I asked ChatGPT. Hey, give me. Give me just some some general informational items.

So give me some some like hospital like healthcare buildings give me some multi family high rise buildings. Give me some schools. Let’s divide this into different kinds of square foot. What are the average square footage of any of these kind of facilities? Right. And so this kind of gave us some of the more average square square footages for each of these types of entities, right? And so we’re looking at multifamily high rise, you know, say a medium high rise between 11 to 20 stories, 150 to 300 units. We’d be looking at average square foot of between 150,000 to 400.

So I chose a little median right there and then I went with some of our. Data that we’ve had here from an efficiency perspective. Where we’d likely land if we were to do just some energy improvements. And so that’s how we were able to kind of come up with this, these numbers right here. So we can see, I mean, at least at a high level what what we’re looking at from an overall deduction perspective.

So if you have any particular building in mind, you can kind of have an idea of what that deduction could possibly look like, especially if you meet like, say, the prevailing wage and apprenticeship standards, or if you don’t meet the prevailing wage and apprenticeship standards. So this is. The 2025 rates right here. With the with without per I sorry, the 2024 I believe without the prevailing wage and apprenticeship, essentially let’s say we have the medium high rise here, it would be a $218,000 deduction and your liability reduction will. So the amount that you. Actually reduce your taxes by would be $65,505 in in this case.

If you did meet those parameters. Like I said, it’s a five times bonus rate, so it’s a really sweet if you can hit that hit the that those documentation. Standards and get and acquire those things that you need to. It is a five times bonus rate and and you can just see how effective that is at reducing your overall tax liability. So $326,535.00 of overall tax liability reduction, if you’re able to utilize this and say you did an energy improvement project where it was just lighting and say an HVAC or a new HVAC unit, you could get this get. This amount here and secure that that would be. An amazing overall reduction.

And this is if, say we had new construction, we hit 60% efficiency standards. Now you saw it was capped at 50, but let’s just say we hit 60 and that’s not unreasonable for a brand new constructed unit. This is what our tax liability reduction would look like, right? It would go. In this case, we met prevailing wage and apprenticeship standards. It would be a $1.5 million deduction here on this on this $10 million installation that we do. Right. And you get an effective offset of $466,125.00.

So I I still just want to ram home how important it is to get this prevailing wage and apprenticeship standards met, because it makes such an impactful difference to your overall. Deduction that you can get. Now this is the real kind of meat and potatoes and and it really comes down to structure and usability on these specific deductions.

Because obviously we want to make sure that when we are doing these, these different types of tax strategies that you’re able to utilize them because the last thing you want to do is go through this whole process and not be able to actually offset any of your income. With with these these specific studies, right?

So you know, a lot of times we’ll see real estate investors, a lot of people get into this game and they understand there’s a couple things to it from a tax perspective that makes it tax advantage. And that’s generally speaking, going to be mortgage interest and depreciation, right. A lot of those. A lot of that means that properties, especially what I would call immature properties, are at the very beginning of the property’s life or after acquisition. Is generally going to be at a tax loss, right?

And so we, we understand that you know and you really have to look at how your your properties look like from an overall portfolio perspective because there are some issues with passive loss rules. So you have to be able to look and see like OK. Am I selling another property over here where I’ve got depreciation reclamation? >And do I need to offset that with additional losses posted to another property? And it really depends on how you’re classified as a real estate investor too. If you’re a real estate professional. Not a real estate professional.

Or if you’re owning this within, say, a big partnership and you’re a passive partner in it, there’s a lot of different aspects to kind of look at here. So you know, one thing that it’s important to kind of highlight is that cost segregation in 179 D really represent timing deductions that are subject to reclamation upon sale of the property.
So these are deductions that you can take and you can accelerate now and use that to offset other income that you may have elsewhere within your portfolio. But at some point, you do have to pay the piper if you will, and you do have to pay tax on that property, but you can use specific tax strategies like. Section 1031. To essentially rule that basis into a new property and then that way you don’t really ever have to pay that reclamation back, right?

And that’s that’s that’s a well known real estate investor strategy is to keep rolling these properties into other properties and increasing the basis and and taking that basis where you can so that you don’t you hopefully don’t have to get into that aspect but say you’re in that. In that aspect, where? You’re you’re. You’re divesting of a few other properties within your. Portfolio. This is a great opportunity to offset that.

The other thing too, and I don’t think I’ve listed it here as well, is utilizing cost segregation to offset active trade or business income and a lot of times you’ll have a building that you own, you’ve got, you’ve got an active trader business and you’re kind of rent. That to yourself or renting and you’re doing like a self rental. There’s things that you can do within the tax code that allow you to group that that activity with that specific building that allow you to offset your your normal active income with a cost segregation study and we see that quite a bit in our in, in our real. We see that happen a lot. And so there are opportunities available to you if you are in that situation.

I did just want to point that out, especially for folks that aren’t just solely real estate investors that might have some other business activities available to them that that does represent an additional opportunity. There are. There are larger commercial real estate ownership structures that’ll look into like these certain strategies, right? You know section like. Elections for section 163 J. You know there are some things to kinda you have to look at the overall structure and you have to be able to, you know, anticipate future tax liabilities.

And so that’s one of the things that we do here at corporate tax advisors is we take a look at your usability and ensure that that as we’re looking through the whole tax structure and how you guys have this allocated that you’re able to actually utilize this to. The to the to its maximum. Potential the best tax strategy here is really to be classified as. An active participant in the ownership of the property and to be classified as a real estate professional.

So there are some qualifications that you have to meet to be classified as a real estate professional. If you’re a real estate investor and you’re kind of, this is your full time profession. I mean, you’re pretty much a real estate professional. It’s pretty easy to kind of prove that in front of the IRS. And so you know, you’re able to kind of utilize this as income offset. So say you have an S Corp and you have AW2 throwing through it. But the hey, you are a real estate professional and that’s party your job of this escort.

You should be able to offset and utilize this cost segregation study to offset some of that additional income.

There are some ways that you can structure with larger scale partnerships to allocate more active loss to specific active partners, but I did want to caution that that’s always within the rules provided under IRC 704, right? So that’s the the code section there that kind of makes sure that we don’t unfairly allocate losses in profits to to people. So there’s there’s usually some aspects that you have to do.

It’s a lot more difficult to do some of the more tax strategies around that and planning around Section 704. There are opportunities for certain individuals of lower AGI and you actually see this quite a bit here for real estate and professionals because we have so many. Tax tax properties that are flowing through at a loss, right? If you accumulate all these things together, your AGI might not necessarily be more than $150,000. But you may. You may have cash flow. That’s well in excess of that.
You may have cash flow. And half $1,000,000 range or or $1,000,000 range or higher, right?

But you might have an AGI or taxable AGI of $150,000 due to mortgage interest deductions and depreciation deductions, right? So you could possibly fit into this little tiny window here, and you can benefit from a $25,000 passive loss allowance if if if certain parameters are met, right? So that that does exist and that is out there. We also see some some folks here that. Are in short term rental ownership like Airbnb?

And the primary activity is really not necessarily the Airbnb itself, but maybe they’re doing horse riding or something like that. And that’s the real activity, but part of it is providing lodging while they’re out there and you’re providing, you know, substantial personal services and stuff like that. You may be able to classify that as a Schedule C Active trader business and be able to offset the entirety of the cost segregation study. Against any active trader business income and that really that boils down to what I was mentioning earlier there. If you have a. Active business that you’re offsetting elsewhere like that, you have a that you own the building for, you know, a lot of that, a lot of that will work for you pretty well from a cost segregation perspective.

OK.

So jumping into how green tax credits work, and I think a lot of people are familiar with how this stuff works.

I mean the solar panels and you know, wind energy and things like that, right? But for the most part, we’re going to talk about solar panels and say H certain HVAC elements like geothermal HVAC elements. And I would say the the heat pumps and stuff like that, as long as the heat pumps have an aspect of. What you would call energy storage associated with them.

So as long as they have meet those parameters, that’s that’s going to be really what real estate investors are going to be seeing the most of. If you if you are doing anything like that, you can qualify for a credit of between 6:00 to 30% most of. That’s going to be around the 30% range.

There are some 10% bonus increases if you are, say, in an energy community. When I say energy community, it’s kind of funny how the IRS classifieds energy communities, but. So Houston would be an energy community because the majority of the people who are employed.

And energy out there are employed in an oil and gas aspect, right? So they basically they’re trying to transition folks from oil and gas or some of these non renewable energy resources into renewable ones and they will classify and give you an extra 10% if you were able to say put in a renewable energy in that particular location, right.

So that you can get an extra 10% there. You can get an extra 10% on. Domestic material and there are, we just we’ve had a few folks here.
That we’ve talked to that are just now starting solar production here in the United States using domestic material.

So if you can meet that parameter, you get an extra 10% bonus there for the Itc’s. And then there’s also another aspect here called the lowing, like low income community bonus. And it sounds really great at the outset, but it really takes a lot of approval and there’s funds that are associated with it. So you have to go through this big long process with the IRS and most of the funds are already handed out. Especially at this point here in 2025.

So you’d have to plan a project in 26 with a certain amount of allocated amounts, hoping that that that would still be available through whatever administration changes. There may be this year, right? So we generally just don’t even count that as being possible for that extra 10%, but it is out there. You can also sell this credit, which is a unique aspect of the credit.

That’s out there and usually you can kind of get between the 85 to 90. 90% probably.< It’s more like 80 to 85% of the value of the credit. If you can’t utilize the credit for whatever reason. So you shouldn’t be able to sell or transfer, and it can also be coupled with state incentives. So there’s no preclusion of any of that. And the IRC 48, just just to note here that we switched over from IRC 48, really to IRC 48 E beginning in 2025 essentially.

So if you are looking at projects. Next year, in 2025 going forward, it’s really 4080 that’s going to be your predictor, whether or not you’re going to be able to qualify for a tax credit using a specific technology and and most of what 48 E does is its battery storage and. It is also. certain. I mean, green energy technologies are net zero, net zero, greenhouse gas emission technologies, right? Another cool one here is the electric charging stations. As long as you’re in A and the problem is, is how they’ve classified. This if you’re in a rural community or if you’re installing it in a rural community, or if you’re installing it in a low income community, you essentially get this 30% credit.

So any installation that you have for any of these charging stations, as long as you’re in the you meet those two parameters, you get a 30% credit. It’s also capped at about $100,000 per charging stations. So something else to note there.

So qualifying technology is under 4080, when energy, property, solar, energy, property, hydropower. Our introduced storage. Like I said, this is what what I’m talking about here when we’re talking about, especially for real estate investors, thermal storage like heat pumps and and you know there usually needs to be some kind of heat sink associated with this where where that where, that, that heat really.

Kind of gets exchanged if you will waste energy recovery property that’s going to be the same type of thing, right? A lot of that’s going to have to do with these, these kind of heat sink or energy storage kind of facilities.

Geothermal is going to count as well, right? But these are the the types of qualifying technologies that essentially are going to qualify.

And this is a pretty easy calculation, right? I mean, essentially we’re especially, we’re just looking at solar, you know it’s a it’s a 30% credit. As I mentioned before, we’re just looking at big round numbers here. We got 100K that we’re looking at from a cost basis of of, say, a solar installation. And I mentioned that was a little high. But let’s say we did that. We got a one MW exception. We need that.

We get 30,000, but we get a $30,000 tax credit if we are installing it in Houston.

Hey, we get an extra 10% and if for some reason we are able to find one that meets the domestic. We’re gonna get here is gonna be a $30,000 installation. Now, if you couple that with some state incentives. Stuff like that. You can have like 50% of this stuff already paid for, and if you look at some net metering opportunities that may be out there, you might be able to get this equipment totally paid for if you if you strategize it appropriately and you put it onto the. Right. The right house, right? And same thing here with the residential heat pump.

I’m not going to go through all like the the the all the same kind of things here, but I mean essentially it’s 30% that’s going to be the most likely that you’re going to hit here for any kind of installation. For any of that stuff, and let’s say if we did, we did battery storage interconnection to the grid solar panels and we put this on a big commercial building. What would we get? We get in the in our installation cost was 300,000, we get $90,000.

You know, I didn’t mention it before, but there are some other aspects to the code, like the production tax credit, where you get paid by the amount of actual electricity produced. We’ve done a bunch of analysis on that and the ITC is by far more beneficial to most taxpayers. So we just really kinda keep it to the ITC. There are other possibilities and things that you can take from a deduction perspective. And so heat pump with a storage tank, right? This on a big on a on a big commercial property, right? Like a half $1,000,000 you get a tax credit of up to $150,000.

So it’s pretty, pretty good stuff. So that being said, I’m just going to drop right in here into what we can do for you as corporate tax advisors and how we kinda go through our whole incentive and production process. The the first thing that we do. As Mark mentioned is we run a preliminary analysis. That’s where we take your information. That you gave us, at least from a high level, and then we can figure out whether or not first of all how much we estimate the deduction to be right. And then we’re going to look at essentially whether or not you can use it. So that’s that’s part of what our preliminary analysis is and we deliver that. You know that’s a free no cost preliminary analysis. We can do that for any type of property that you may have or any type of installation that you may have.

We’d we’d love to just take a look at it and see if we can help you there. And then stage two, if we do, if we do find a deduction out there that you need that, that could help and benefit you quite a bit. We go through an instruction and and documentation gathering phase, right. So you know, it depends on what we’re doing here, but you know for cost segregation, 179 D studies, we will do a site visit, right?

A site visit is necessary for all of those. Those specific deductions, right. And so that have qualified individual may inspect the property. Pretty right? And then we get together all your stuff and then we do this final study delivery and credit retrieval where we walk through the forms process of getting it and we work with your your tax preparer in order to make sure that you’re able to get that full benefit. That’s out there and available for you. And the other thing that we offer here is we do a lot with audit defense, right? So if you’re for whatever reason, if. Your deduction or your credit is selected for exam CTA will stand by its work. Represent you through exam up to appeals. And a lot of the documentation that we pull together in that final study delivering credit retrieval is used as a foundational foundational process there to to help defend you.

And that’s and that’s what we’re here for. So we’re here to help help get you the biggest maximum amount of money that you can possibly get. And you know, if there’s anything out there, if something ever comes back at you, we’re always there to stand by your side. Life, right? And we’ve been in this business and been doing this for quite a while. So like I said, we we we’ve always stand stood by our work as we go through this process.

So all right. That’s pretty much it today, guys. Thank you very much for attending. I don’t see any Q&A questions, if anybody if anybody doesn’t have any Q&A questions, we’ll go ahead and wrap it up right here. We’ll be sending out the video.

I’m not sure exactly how that process works. We’re just starting this webinar stuff back up again, so we’ll be trying to be sending out the video here shortly, so that way you can go back and see any of the specific items that you want. And as always, if you have any questions. Feel free to reach out to. Unless we have plenty of ways to contact us through our website www.corporatetaxadvisorscom, so feel free to reach out to us. We’d love to have a chat and just kind of see where you are with things and if there’s anything that we can help you with. All right. Well, thank you very much guys. And we will catch you later.

Thanks everybody!