*Intro and outro music are from an original piece by

Carl Zukroff of The Blue Hotel

Jeff Hiatt

Performance Business Solutions LLC

1031 Exchange

2 Minute Guide to 1031 Exchanges

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You have stumbled on to another episode of Get Your FILL – Financial Independence, Long Life, where we explore ways to achieve those two goals.

Today is part two of our conversation with Jeff Hiatt.

If you missed part one, it might have cost you money. So go back and find it. ’cause Jeff is an expense reduction consultant. He and his team at Performance Business Solutions LLC, help business owners and property owners to reduce expenses and increase profits. Jeff, what’s the good news for property owners who are just discovering segregated accounting?

J: And the good news is even for the properties they’ve owned, the IRS allows you to go back in time. So even if you’ve owned a property for 5 or 7 or 10 or 12 years, you can step back in time and grab that depreciation without having to amend your tax return.

Because to amend, you only can go back three years. but the IRS allows you to use what they call it form 3115, which is the Change in Accounting Method. So instead of doing straight line depreciation you’re changing the accounting method to accelerated and you use that change form and it’s automatically accepted by the IRS. You don’t have to amend your tax return and you grab the three or five or seven years’ worth of depreciation, all in the current year, so that’s a big pick-up there. So that worked out nicely.

C: Yeah, that’d be a nice little check.

J: Usually it’s not a check back.

C: it’s just a huge reduction in your taxes.

J: Correct, you have it as a loss for this year all that depreciation and it reduces your current year income tax, and then anything that you can’t use in the current year, you get to roll forward in the next year so that works out nicely too.

C: Yes, very… Oh yeah, that’s good… Good tip, good thing to know. Yeah, ’cause all the people who are listening, who are saying, like… Oh man, I wish I would have known this when I bought my building. They can now go back.

J: Exactly, yeah, as a technical point, you can go back to ‘86 when the tax law changed, but usually you don’t go back that far. Usually the benefit – because the accountants will tell you – this is what they call… What the accountants call a timing difference.

In other words, I’m not giving you more depreciation you’re getting the same depreciation, it’s just you’re getting it sooner.

Well, the benefit of that, the timing benefit of that is usually achieved in the first 10 years. You might go push it out to 12 years, but that’s really kind of the window that is most frequently looked at for these. So we would typically get depreciation schedules, because that’s all we really need for those existing buildings.

All we need is a copy of the depreciation schedule, and if we can get a copy of the depreciation schedule, then we can do a Google search on the building, look at that building. It’s a five-family in Salem, New Hampshire or wherever… Boston, Mass or Brookline… Or whatever.

And we can then break apart what we would think as an estimate and we know – Oh, look at that. The depreciation says they paid $180 grand for it, in 2017 – here’s what that benefit would look like, and they can know roughly what the tax benefit is gonna be before they spend a nickel. That works out.

C: And what’s the impact when they… I’m assuming that when they sell it, if they sell it seven years in, or something like that, that they’re gonna have perhaps a larger tax burden at that time, right? As far as… ’cause they’ve depr