Cost Segregation + Opportunity Zone Tax treatment + 2020 CARES Act = the most amazing tax loophole in our lifetime! Why you ask?
CARES Act allows property owners to 'carry back losses' into the past up to 5 years. This means if you take a loss in 2020, 2021 - you can get back federal income tax you paid in the past, this year. Huge refund?
Cost Segregation - allows you to write down/depreciation the value of your property in 7-10 years, vs the typical 39.5 year schedule. What does this mean? You will have a $0 basis by year 10.
Opportunity Zone - You pay $0/0% capital gains tax on qualifying property investments in OZs.
Let's do the math:
- Buy a property using cap gains for $1,000,000. Let's say its a 6 cap = $60,000/year in income. Cost seg for a 10 year depreciation = $80,000/year in depreciation deduction. Which means the $60,000/year is tax free income + $20,000 in additional sheltered earned income.
Over 10 years you got $600,000 in tax free current income + $200,000 in deductions ($68,000 tax savings @ 34%).
Let's say the property simply doubles in value = $2,000,000 and you sell it in 10 years.
This is a $1,800,000 cap gain (your basis is land value = $200,000). You save $360,000 in cap gains tax (20%).
So your total tax free return is: $1,668,000, which is 17% per year, without leverage.
Now let's say you put 70% debt on this same asset... yikes. You wouldn't believe me if I total you what you ROI is in this example. Email me if you're interested in learning more Bob@DIRTRealty.com