Hey Reader,

A few weeks ago, I gave a presentation to Brandon Turner’s real estate investor group, First Deal. We covered:

• The STR loophole and why short-term rentals are treated differently
• How to qualify for Real Estate Professional Status (REPS)
• Strategies for getting your spouse to qualify for REPS
• Bonus depreciation and how it front-loads your tax savings
• Real examples and case studies of cost segregation in action

The big takeaway I wanted to leave them with: most investors underestimate how flexible these strategies are. The STR loophole lets you use losses against W-2 income without needing REPS. If you do qualify for REPS, those same losses can offset wages, business income, even investment gains. And when you layer in bonus depreciation, the numbers can be huge because you’re pulling deductions forward into the years you need them most.

I also walked through how we approach cost seg at Maven. In-person vs. virtual studies, what makes sense based on deal size, and how we make sure the final report is CPA-ready so there’s no back-and-forth at tax time.

If you’d like a copy of the deck I presented, just reply to this email with “first deal” and I’ll send it your way.

Understanding Depreciation Recapture

One of the most common questions I get from investors is: “What happens when I sell? Do I lose all the tax savings?”

Just last week, I was on a call with a client who had used cost segregation to front-load over $100K in deductions on a $1M property.

He loved the savings, but now that he’s ready to sell, he was worried the IRS was going to take it all back.

I told him what I tell everyone: Depreciation recapture isn’t a penalty. It’s a timing difference.

Here’s how it works:

The IRS splits your property into two buckets — the building itself (§1250 property, taxed up to 25%) and the stuff inside and around it (§1245 property, taxed at your regular income rate). When you sell, part of the depreciation you took gets “recaptured” and taxed.

But the key is that you got those savings upfront, when the cash was most valuable.

Even after recapture, most investors come out ahead because they used that money to reinvest, pay down debt, or grow their portfolio.

And the recapture tax isn’t always inevitable. With the right strategy, you can defer, reduce, or offset much of it:

• A 1031 exchange lets you roll the gain (and recapture) into your next deal.
• Buying more real estate creates new depreciation to offset the old.
• Or you can use an installment sale to spread out the impact over time.

A quick notes that often surprise people:

Recapture only applies when you sell, not when you refinance or continue holding.

But we help clients model these numbers upfront, so there are no surprises later.

Depreciation recapture sounds scary because it’s misunderstood. But for smart investors, it’s just another lever in the tax strategy playbook that rewards you for thinking long-term.

If you’ve got a property and want to see what the numbers look like, book a call with me. I’ll run an upfront analysis, show you the potential tax savings, and help you decide if it’s the right year to pull the trigger.

Talk soon,
Sean

CPA | Founder of Maven Cost Seg​

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