Welcome to the Freedom Point Podcast! In this episode, Jeremy sits down with Gian Pazzia, a leading expert in cost segregation and tax incentives for real estate investors. Gian helps owners, CPAs, and syndicators unlock tax strategies designed by Congress to fuel growth and reinvestment. Together, they unpack the mechanics of cost segregation, bonus depreciation, and passive loss activity—breaking down how these tools can accelerate wealth-building for both active and passive investors. Gian also clarifies who qualifies for real estate professional status, how to leverage short-term rental loopholes, and what investors should understand about depreciation recapture and 1031 exchanges. Whether you own a single rental home or a 300-unit apartment community, this episode reveals how cost segregation can dramatically change your after-tax returns.

Tip #1: What Is Cost Segregation and Why It Matters
“Cost segregation is essentially an engineering-based analysis of a building’s components to accelerate depreciation.”
Gian explains that cost segregation breaks down a property into individual components—such as flooring, appliances, and fixtures—so investors can depreciate certain assets faster, improving cash flow.

Tip #2: Why It’s Considered an Engineering Process
“It’s called engineering-based because we literally have engineers analyzing construction drawings and cost data.”
Unlike standard accounting, cost segregation requires engineering expertise to identify and quantify which parts of a property qualify for accelerated depreciation.

Tip #3: Understanding Bonus Depreciation
“The IRS uses tax law to incentivize investment—and bonus depreciation is one of those incentives.”
Gian discusses how bonus depreciation allows investors to deduct a large percentage of a property’s value upfront, reducing taxable income in the early years of ownership.

Tip #4: Active vs. Passive Investors
“If you qualify as a real estate professional, you can use depreciation to offset active income. If not, you can still use it to offset passive income.”
Active investors who meet IRS requirements can apply depreciation against earned income, while passive investors carry forward unused losses into future tax years.

Tip #5: The Short-Term Rental Loophole
“Even a motorhome used as a short-term rental can qualify for bonus depreciation.”
Gian explains how properties rented for fewer than seven days per stay can sometimes be treated as active businesses, allowing investors to claim depreciation benefits without being classified as real estate professionals.

Tip #6: What to Know About Depreciation Recapture
“When you sell the property, the IRS wants to ‘recapture’ the depreciation you’ve taken—but that doesn’t mean you’ve lost the benefit.”
Gian breaks down how recapture works upon sale, and why strategies like 1031 exchanges allow investors to defer that tax indefinitely while rolling profits into new properties.

Tip #7: Cost Segregation for All Property Sizes
“Even small portfolios can benefit from cost segregation—it’s not just for large multifamily or industrial assets.”
Gian emphasizes that single-family rentals and small residential portfolios can also leverage cost segregation, though the scale determines the ROI of conducting a study.

Tip #8: Using Trusted Experts
“This isn’t something your CPA can do effectively—cost segregation requires technical expertise.”
Gian notes that specialized firms ensure accuracy and compliance, maximizing benefits while avoiding IRS scrutiny.

Tip #9: Ongoing Changes in Tax Law
“Tax incentives are meant to drive investment behavior—when Congress changes them, the market reacts.”
He reminds investors to stay informed about legislative updates like bonus depreciation phaseouts or new incentive extensions that can affect long-term planning.

Tip #10: Deferring Taxes with 1031 Exchanges
“Even after depreciation recapture, you can continue deferring taxes through a 1031 exchange.”
By rolling gains into another property, investors can compound wealth over multiple transactions without triggering immediate tax liability.