How to Save Big in Taxes While Building Long-Term Wealth through the OBBB
Hello and welcome back to another session of Visibility CFO, Tax and Legal. I’m Andrew Stubbs, and remember this is where we break down real-world challenges our clients face—and share clear, actionable solutions that help business owners move forward with confidence.
As you all may very well know, we’re at the mid-point of the year, which is an important time to think about how the final 6 months will take shape in minimizing your tax liability. Waiting until the end of the year severely limits what you can do.
Today we’re zeroing in on a powerful—but often misunderstood—tax strategy: and that’s ACCELERATING DEPRECIATION through a cost segregation study, typically on Real Estate, but can also be on other capital assets like equipment, machinery, vehicles - commonly known as business assets - it’s what I like to call paper loss tax shields. Why do we call it a paper loss? Because you create a tax deduction that you’re not fully paying out in cash - unlike many other tax deductions where cash has to leave your bank account for you to get that deduction.
NOW, This strategy is getting a lot of media attention because as many of you now know, the Big Beautiful Bill recently passed on the 4th of July, put in place 100% bonus depreciation, which just further accelerates this paper loss. But it is often misunderstood and incorrectly applied. When you do get it right, however, it can create six-figure tax shields and supercharge real-estate returns. But you need to clear some IRS hurdles first. Our goal? To give you clarity on the key rules and show how the numbers work in practice. Let’s dive in.
By default, rental income is passive, meaning losses can’t offset your W-2 or business income. To treat those losses as active you (or your spouse) there are things you can do to reclassify your income. And understanding those requirements is imperative to be able to implement this strategy.
One of those ways is through the Short Term Rental strategy. This requires a little bit of a lift on your end but the benefits are exciting. The basic rules here are:
#1: The average guest stay is seven days or less,
#2: You personally work 100+ hours on the property each year, and no one else works on it more than you.
then the rental income can be treated as non-passive—even if you have a day job. That opens the door to using cost-seg losses against regular income without the full real-estate-professional grind.
#3: How Cost Segregation Creates a Tax Shield
A cost-seg study typically reclassifies 20–30% of a property’s basis into shorter-lived assets which can be eligible for accelerated depreciation - aka Tax Shield. Let’s use an example to illustrate:
Let’s say you have a goal to purchase $1 million worth of real estate to both boost your net worth, create some cash flow and to minimize your tax liability.
RE typically requires around a 20% downpayment - so $200K, which could come in the form of one purchase or many amounting to the $200K
Upon purchase, you perform a Cost-seg study reclassifying the property’s basis to an accelerated depreciable value of roughly 30% or $300 k
NOW, let’s apply this to a typical income scenario:
If you earn a $300 k salary, the $300 k paper loss deduction could potentially wipe out roughly $75 k in combined federal and state tax. So your net cash outlay feels closer to $125 k ($200 k down minus $75 k tax saved).
#4: The Catch—You Must Meet the Hours Test
Those huge deductions only stick if you qualify as a real-estate professional or meet the STR exception. Miss the hours, and your cost-seg losses stay passive—usable only against passive income.
#5: Action Steps to Stay Compliant
Track hours meticulously—a simple spreadsheet or time-tracking app works.
Document material participation: meetings, calls, site visits.
Engage a qualified cost-seg firm and loop in your CPA early.
Confirm STR status—average stay, 100-hour rule, and no-one-works-more-than-you test.
Conclusion
Cost segregation can feel complex, but with the right structure it turns taxes into powerful leverage for building wealth. A few intentional steps—tracking hours, confirming STR rules, and running a solid cost-seg study—make all the difference. And you don’t have to figure it out alone.
If you’d like a second set of eyes on your real-estate strategy—or help setting up systems that keep everything clean and compliant—reach out. We’re here to simplify the complex and support your growth.
Click the link to book a session with our team.
Let us help you stop guessing—and start seeing clearly. Let’s do this.