“Once you understand depreciation, you’ll wonder why more people don’t use it. It’s not a loophole—it’s written into the code on purpose, and that’s the best part.”
— Bronson Hill
So depreciation is legal theft from the IRS.
I want to show you a number that sounds like a magic trick and it’s not.
It’s a real strategy written into the tax code that most people have never really had explained to them.
It’s called depreciation.
And once you understand it, you’ll wonder why more people don’t use it.
1. Depreciation: The Paper Loss That Pays Real Cash
The first point about depreciation is what it really is.
The IRS allows you to claim a paper loss on a property, spread it out over time, even while that property might be appreciating in real actual value out in the market.
On paper, it looks like the asset is losing value every single year, but in reality, rents are coming in.
The property is typically worth more than you paid for it over time, at least theoretically.
And you’re still allowed to claim that tax against your taxable income.
Now there’s some rules there, some things to take into account, no specific tax advice.
But that’s not an accident or loophole that someone found.
This is actually written into the code on purpose.
The government wants more investment in real estate because they want incentive to really help people to provide housing.
2. Cost Segregation and Bonus Depreciation: The Accelerator
The second point is really that cost segregation and bonus depreciation take it even further.
So normally a residential property depreciates over a 27.5 year period.
It’s a small deduction spread over a long period of time.
But a cost segregation study breaks down the property into its individual components.
The fixtures, the flooring, the land improvements, many of which the IRS allows you to depreciate much faster than the building as a whole.
So you combine that with bonus depreciation.
Instead of waiting for decades for that deduction, you can take a massive chunk of it in year one.
And this is why so many real estate investors can show a loss on their tax return in the same year that their property actually went up in value.
Think about that for a minute.
And it also paid them in cash flow the entire time.
So not only are you getting the tax benefits, you’re getting cash flow from that as well.
The deduction was much larger than what a normal depreciation schedule would have given me.
And so it’s not an error.
It’s common to see 70% to 100% typically in year one.
3. Real Numbers, Real Wealth: From Paper Loss to Cash in Hand
The third point in all this is let’s put real numbers to this so that it actually clicks.
So let’s say you invest in a property through a cost segregation study.
Maybe it’s syndication.
A meaningful portion of that investment gets accelerated into an immediate deduction.
And that deduction can offset the rental income the property produces, sometimes bringing your taxable income on that investment down to nearly zero.
I actually had years I paid about 1% of my total taxes.
Even while the cash is still coming into my account or your account every single month.
And if your spouse qualifies as a real estate professional or REPS as a real estate professional status under the tax code, those losses potentially offset other active income too.
It’s not just the income from the property itself.
And that’s the piece that turns this from a nice perk into a serious wealth building tool.
And this is why sophisticated investors, this is why investors that really understand this chase depreciation almost as hard as they chase cash flow.
It’s not about avoiding taxes illegally.
Tax evasion is like a go to jail thing.
But it’s tax avoidance.
It’s using these incentives to help avoid what the tax code is actually written in there to help align with government interests.
And this is the way a lot of wealthy families and institutional investors will actually shield themselves from taxes.
Most people never benefit from this.
Not because it’s complicated, but because their CPA never brought it up and they don’t even know how to ask.
And now you know the question to ask.
How can I reduce my taxes?
How will depreciation help me?
It’s a great question to ask operators.
It’s a great question to ask when you’re getting into any investment and really asking the questions of what do I really need here.
If you’re a high earner, if you’ve got maybe some gains you need to offset from selling a property or selling a business, there are ways to do that.
The Closing Block
So if you haven’t reached out to us, I’d love to have a call with you or a team would have a call with you and just talk through what it would look like for you to help to get in a better tax situation where you’re not given a lot of it back.
If you’re giving back 20, 30, 40, 50, or 60 percent, some people are giving over 60 percent back, it’s time to have a conversation.
And get some real knowledge behind that which really becomes power for you.
So if you haven’t joined our investment club or had a consult with our team, check the link below.
Check out bronsonequity.com/join.
We’ll have a call with you, learn what your goals are, and talk through how depreciation and cost segregation can work for you.
That’s really how we get better, right?
We really educate, we do things like this, and this is how you learn as well.
Thank you for taking the time to educate yourself.
We look forward to seeing you in the next video.
