You Don’t Need More Deals: Get Higher Returns From What You Already Own | Ep. 21

In this episode of The Sage Investor, host Brian Spear welcomes Kim Lochridge, Executive Vice President of Engineered Tax Services, to discuss how sophisticated real estate investors can optimize after-tax cash-on-cash returns from their existing portfolios. The core thesis is that wealthy investors do not necessarily need more deals; rather, they need to structure and manage their current assets more intelligently to mitigate the erosion caused by taxes.

The conversation dives deep into advanced tax design principles that extend beyond basic depreciation strategies and generic cost segregation studies. Lochridge illuminates the mechanics of partial asset disposition, an often-overlooked strategy that allows property owners to write off the remaining depreciation of building components—such as roofs or HVAC systems—when they are replaced during renovations. Crucially, she explains that partial asset disposition is a time-sensitive, current-year opportunity that cannot be claimed retroactively, making proactive annual planning paramount.

Additionally, the episode addresses the strategic value of banking passive paper losses for limited partners to offset future capital gains and other passive income streams. Lochridge warns investors against allowing tax benefits to dictate bad investment decisions, citing the over-saturation of the short-term rental market and short-sighted niche property acquisitions as cautionary tales. Finally, she provides actionable steps, such as examining structural depreciation schedules and preparing for the upcoming 2026 opportunity zone tax liabilities, enabling listeners to make informed asset management decisions before signing their tax returns to maximize long-term wealth retention.

Key Takeaways

• Optimize Existing Assets First: Instead of constantly chasing new deal flow, wealthy investors can achieve superior after-tax cash-on-cash returns simply by structuring and optimizing the portfolios they already own.
• Act on Partial Asset Disposition Immediately: Unlike standard cost segregation adjustments, partial asset disposition is a strict, current-year opportunity; if you do not claim the write-off for discarded assets in the year they are physically removed, the deduction is permanently lost.
• Avoid Double Depreciation and Recapture Traps: Failing to clear replaced components from your depreciation schedule means your CPA is carrying multiple versions of the same asset, which unnecessarily inflates your accumulated depreciation and exposes you to severe recapture taxes upon sale.
• Leverage the Power of Passive Paper Losses: Limited partners can strategically use negative K-1 paper losses generated through cost segregation to offset other passive income streams, or bank them to cross the tax line and offset massive capital gains upon asset liquidation.
• Don’t Let the Tax Tail Wag the Investment Dog: Investing in niche properties like gas stations or short-term rentals solely for immediate tax write-offs without evaluating future market demand and long-term cash flow viability can result in severe financial distress.

Key Topics Covered

• After-Tax Cash-on-Cash Return Optimization
• Cost Segregation Studies vs. Advanced Tax Strategy
• Mechanics of Partial Asset Disposition (PAD)
• Mitigation of Depreciation Recapture Taxes
• 2026 Opportunity Zone Tax Liabilities
• Strategic Application of Passive Activity Losses for LPs
• Pitfalls of Tax-Driven Property Investing
• Reviewing and Interpreting Form 4562 and Structural Depreciation Schedules

Episode Chapters

00:00 Intro

Host Brian Spear introduces the core philosophy of ownership design over deal chasing, welcoming Kim Lochridge of Engineered Tax Services to explore maximizing returns on existing portfolios.

03:10 Pay Less on Your CURRENT Portfolio

Brian and Kim explain why optimizing current holdings is identical to retaining top-tier employees, focusing on squeezing top-line numbers down to the after-tax bottom line.

06:06 Do This Before 2027

Kim highlights a critical upcoming tax liability hitting opportunity zone investors in 2026 and explains how existing portfolios can be utilized to proactively offset it.

07:42 Greater Than Depreciation? (Partial Asset Disposition)

The discussion unpacks the definition and immense value of partial asset disposition, emphasizing its strict current-year execution rule and how it prevents carrying dead assets on the books.

15:48 You’re Wrong About “Recapture”

Kim breaks down how depreciation recapture is calculated and debunks common CPA misconceptions by presenting defensive tools like 1031 exchanges, lazy 1031s, and partial asset disposition.

18:05 Every Investor Should Do This

An actionable deep dive into the importance of requesting and auditing your complete building depreciation schedule rather than settling for a standard Form 4562 summary.

22:39 Paper Losses for Passive Investors

Kim describes how limited partners can strategically group, deploy, and bank passive activity losses to offset alternative passive income streams or future capital gains.

27:58 Dangerous Tax “Strategies”

A warning against over-optimizing for taxes, outlining how short-sighted investments in gas stations or short-term rentals can backfire when market dynamics shift.

31:29 Kim’s Sage Principle

Kim delivers her foundational wisdom on questioning advisors, building a specialized tax team, and taking advantage of the tax code legally without leaving a “tip” for the IRS.

34:43 Connect with Kim!

Kim details the educational resources, webinars, and FAQs available through Engineered Tax Services, and Brian summarizes the critical nature of proactive tax design.

Full Transcript

[Transcript begins]

Brian Spear: Most wealthy investors think the next great outcome comes from finding the next great deal. But often the higher leverage move is simpler than that. It’s structuring the deals you already own more intelligently so that more of the return actually survives taxes. And that is what today’s conversation is all about—not tax gimmicks, not deduction chasing, and not a generic cost-seg episode. This is an ownership design conversation because sophisticated investors, they don’t just focus on what a deal earns on paper. They focus on what survives after friction, after timing, after participation rules, and after the tax code takes its cut. Welcome back to The Sage Investor. I’m Brian Spear and my mission is to help you generate cash flow and build legacy wealth in a tax-efficient manner because that’s what I’m trying to do for my family and I’m sharing all the secrets that I learn along the way. Today, I am joined by Kim Lochridge, Executive Vice President at Engineered Tax Services. She has helped engineer tax strategies for large portfolios, family office level investors, and she also has deployed these strategies in her own personal investment life. Welcome Kim. It’s absolutely a pleasure. Great to see you here today. I mean golly, now we’ve been working together for, you know, a decade here and it’s always a pleasure seeing you. It seems like every time that I see you, we interact together, you’re saving myself and all of our partners a heck of a lot of money. So thank you very much for coming on and talking shop. And especially today, golly here, it is the 15th of April where we’re recording on tax day specifically. So thank you for carving out some time, I’m sure in your busy day. How has the last couple few weeks been in your world?

Kim Lochridge: Yeah, thanks Brian for having me here. I appreciate it. It’s always a pleasure to speak with you guys and obviously working with you over the last decade. And I personally, I’ve learned so much from you guys in your podcast. So it’s just so nice to come back and, you know, pay it forward and being able to share some of this knowledge with some of your listeners. Yeah, tax day. It’s tough, man. It’s, you know, if there’s a lesson out there that I can communicate today, it would be please don’t wait until the last minute to, you know, dump stuff on your CPA and, you know, wait till the last minute to get things done. And sometimes the CPAs are really busy, but this is why we should be doing this in January and February and not, you know, March and April. So yeah, it’s a little tough for us and although we don’t file taxes, you know, because we’re doing cost-segregation studies that support the tax returns, a lot of times people don’t even open their final report until it’s time to file their taxes. And then they go, “Oh, there was a mistake,” or “I gave you wrong information,” or “We need to update this,” and then, you know, it takes us time. So that’s what we’re dealing with in these last couple of days in this last week, and it’s challenging. But we all want to be there for all of our clients, so it’s all good.

Brian Spear: Well, much appreciated. I know that it’s a lot of heavy lifting and a lot of work due to the fact that you guys get so unbelievably granular. But that’s for the better, man. We’ll dig into that in a little bit. It’s just again, the service that you guys have provided us over the last decade, it’s been phenomenal and we’ll dig into just how granular those reports are and how beneficial they can be for everybody in a bit. But I just want to start super high level here. Just start with a simple idea, and it’s that most wealthy investors, they don’t need more deals, right? They need to structure the deals that they already own more intelligently so that more of the return that they end up having survives taxes, ultimately focusing on the after-tax cash-on-cash return. And when you hear that, Kim, how do you feel? I mean, how do you feel from your side of the table?

Kim Lochridge: Yeah, I mean, there’s definitely some truth to that, you know, because I mean I myself with my own portfolio, I’d lay in bed at night and I’m like, oh man, you know, I’m not really paying attention to this and that and that and this, and there’s things that I know that I could be doing better. You know, it’s kind of like having employees in a business, right? It’s easier to keep an employee than it is to get a new one. And so if you’re looking at deal flow and you’re going out and looking for another deal, it’s like, why don’t we take a step back and optimize the deals we have right now? And what can we do in-house before we start going outside and creating more of that pressure, you know? So yeah, there’s a lot of truth to that and being able to dig in and understand what can we optimize that we currently own.

Brian Spear: Folks are obviously, you know, the goal is to try to take as much of the top line, squeeze it all the way to the bottom line—again, after-tax cash-on-cash return. But when wealthy investors, they miss the mark in that, when they’re missing the mark from the tax strategy perspective, do you think it’s usually because they don’t know the rules? Maybe they don’t know the code specifically, or because they still think about taxes as compliance instead of strategy?

Kim Lochridge: I think it’s both. I think it’s a combination of a lot of people just tending to say, “You know, if these strategies were good for me, my CPA would have told me.” And you know, and that might be the case, you know, but at least there should be conversations around it instead of just making those assumptions. And then the other thing is, you know, a lot of people, you know, are relying on AI these days, you know, which is just like a nightmare for me because, you know, AI is not always right and people think because they have this AI and it sounds really good that they’re now an expert and they can question every single thing because they ran our report through AI. And now it’s like I have to spend hours and hours and hours, you know, defending to somebody that doesn’t have the knowledge of what we’re doing, you know? So it’s like, one, trust your advisors, but two, question your advisors. It’s okay to ask questions and make sure that things are handled, but you always have to trust that you’ve chosen the professional to do that job for you and that they should be doing a good job. If you’re not having any discussion about certain strategies, then that should key you into probably waking up and saying, “You know, what does this look like? What is my tax strategy? What is my plan for this year, or what is my plan for next year? Do I know where I’m at and what’s going to come down the pike?” One of the biggest things right now that I want to—I’m trying to get to everybody—is that 2026 is going to be a very big year for anyone who invested in opportunity zone projects, right? So any investors out there who decided over the last 10 years, “Oh, you know, this opportunity zone fund is going to be great,” you have a tax liability in 2026 that you’re going to have to satisfy in ’27. Please make sure that if you had anything to do with an opportunity zone fund that you are having those discussions with your CPA because what can happen is you can use your existing portfolio to do some cost-segs or partial asset dispositions or take some deductions to help offset that tax liability that’s going to come your way. And so many people just kind of forget about the ’26 liability, and it’s there and you can’t get around it. And so, you know, that’s one thing that, you know, I just want to put out there for all your listeners. Anyone who’s done opportunity zone investing, you know, please make sure that you’re talking to your CPA before it’s too late, you know.

Brian Spear: Exactly, before it’s too late. That’s the key, right? Everybody oftentimes, you know, we talk about in the rearview—everybody talks to the CPA in the rearview. There’s not a lot they can do, right, when you come in the spring and just say, “How much do I owe?” The conversations are had multiple quarters in advance that you could proactively make some moves in the middle of this calendar year. Again, I think the guys that are, you know, listening to this particular call, we’re trying to help, you know, bring more sage investment advice than maybe the vanilla stuff that you would find just by throwing some prompts into a large language model and hoping for the best. In any event, in a minute, I want to dig into the kind of some of that more granular aspect, right? Some of the partial asset disposition that I think your firm thrives on and how it’s benefited our firm tremendously over time because I feel like that might be maybe the most overlooked lever in the whole conversation. But first, I think it would be prudent to just get a baseline understanding of a cost segregation study in the interest of no man left behind. If we could do maybe a flyover of cost-segs as you are the resident expert in that regard, it would be very much appreciated.

Kim Lochridge: Yeah, thank you, Brian. So just the overview of cost segregation is essentially don’t depreciate your property or your asset over 27 and a half or 39 years. I mean, you’re going to have some elements of that, but make sure that you’re carving out from that same date from the original purchase. You’re carving out assets so that you can have faster buckets. There’s nothing in that property that’s going to last 39 or 27 and a half years, let’s just call it what it is. So what we want to do is make sure that a cost-seg study is done so we can carve out the assets that have a shorter useful life and put those into their appropriate buckets. That’s the first and foremost most important thing that you can do on your property, even if you’re a passive investor, because it will benefit you eventually and could turn into ordinary tax deductions later. But you just have to be set up correctly. So so many CPAs out there are saying you know like, “Oh, if you’re a passive investor, you don’t need cost-seg, it’s totally going to hurt you when you sell.” I mean, there are so many things that you can do to offset that “hurt you when you sell” thing, you know, and that’s a whole different podcast that we can come back and talk about. But I think you’re right that that’s the baseline to cost-seg—is essentially making sure that you’re carving out certain assets into the shorter buckets and making sure that you have those depreciations. And the bonus is very valuable. Um, and you know, that’s the sexy word, right? That’s the sexy term: “Get your bonus depreciation,” that kind of stuff. But arguably, I personally know and believe that partial asset disposition is as valuable, if not more valuable, than even bonus depreciation. And that’s the one thing that I just don’t hear a lot of people talking about in these sectors. You might hear a little bit of it, but it’s not nearly given the weight that it should. And to your point, Brian, um, you know, the partial asset disposition is just like super valuable, you know.

Brian Spear: Correct. I think it just, again, it grows the step return, the after-tax cash-on-cash return over the long term. It’s very beneficial when you implement the partial asset disposition religiously into your business operation. But again, partial asset disposition, like you said, it doesn’t get talked about nearly as much as bonus depreciation. Why do you think it’s overlooked, first of all, and why can it matter more over time?

Kim Lochridge: Well, let’s let’s define what partial asset disposition is so that everybody understands. So essentially, partial asset disposition is removal or a disposal of part of your asset, okay? So your asset is your property or your building, and while you’re doing improvements, renovations, retrofits, you know, you will be taking out some of those assets to make room for the new assets, right? So you think of multifamily or you think of mobile home parks or you think of, you know, whatever it is, that type of property that you’re investing in. You’re going to be removing some assets. That’s the disposal of part of your asset, okay? Now the key here is that partial asset disposition can only be exercised and taken in the current tax year. So if you are on this podcast and you did a bunch of renovations three years ago and you’re like, “Oh my gosh, let me go back and get that,” too late. Done. You missed it. So we’ve got to make sure to raise the awareness because the first step is getting a cost segregation study done first to establish the baseline and prove to the IRS what was there first, right? So here’s the items and assets that were in this property when I bought it, we’ll carve those out and put them into buckets and get you the bonus depreciation, and that’s all the fun stuff. That’s the first part. The second part is, as you own that asset and as you remove other assets out of that building, you’re actually taking the assets off the books just like you did take them out of the building, okay? So let’s take a roof, for example. Say you buy a building, it has a roof, and in year five, you know, you bought that property—it might be 20 years old, it wasn’t new to you, you know, so it was a little dilapidated and you knew you were going to have some renovation coming soon, right? And so maybe in year five, you replace that roof and you spend say, you know, $100,000 on that roof or a million dollars or whatever it is. Well, you know, what happens is a roof belongs in a long-term asset. You can’t move that, even in a cost-seg study, that stays in that long-term 39 or 27-and-a-half-year class. Same thing with structural like HVAC, walls, windows, doors, foundation, you know, those types of things all stay in a very long asset class. Um, that’s why partial asset is so important because those are the assets in older buildings that usually have to get moved over or replaced. So as you remove that roof or the HVAC system or the windows or whatever it is that you’re taking out of the building, you know, you’re putting in a new one which has to be capitalized over the long term. But what we want to do is calculate the remaining depreciation of that asset and get you a tax deduction for the asset that was taken out. So in that roof example, if it was a 39-year property, we removed the roof and let’s say the original roof was a hundred thousand dollars. You’ve only had it for five years. You have, you know, you have 34 years left of depreciation of that hundred thousand dollars that can be shifted out and off the books as an expense. And simultaneous to that, when you’re moving that off of your books and getting it out of the depreciation, you’re also taking it out of your accumulated depreciation. Which is normally what happens if you don’t take PAD or if you haven’t done a cost-seg study—you’re stuck with depreciating two roofs, right? So um, what happens is the roof then has this value to it. It’s on the books originally. You put a new one on, that now adds to the accumulated depreciation, and your CPA is carrying two roofs. You’re carrying two roofs in accumulated depreciation for as long as you own that building. And that’s what kills your recapture numbers, right? So now you’re going to have to pay recapture on that accumulated depreciation. We want to pull that accumulated depreciation off the books because that roof no longer exists. So we want to get that out of that bookkeeping. So as I talk about this and people start thinking about all the renovations and the improvements and the, “Oh man, I did windows and I’ve done, you know, this and I’ve done that,” you start to think about the dollars that are buried in that. You know, we talk about phantom equity, you know, it’s like equity that sits in a building and they’re not utilizing. That’s the same thing—it’s like phantom deductions. They’re sitting there and they should have been removed, and now you’re stuck with them into perpetuity because you can’t get rid of them. Because you didn’t get rid of them in the year that it actually physically was removed from the building. It’s not like cost-seg where you can go back retroactively and capture the benefits and get the bonus depreciation—you can do that all day long. But this one, if you miss it, you miss it for good and you don’t ever go back and get it. So that’s why, Brian, when you say you actively every year working together to determine what assets we’ve replaced and the improvements we’ve done, we want to capture all of that partial asset disposition and that’s why it’s so powerful.

Brian Spear: Love every bit, and I couldn’t agree more. And you know, folks often say, “Hey, well, why would I do the cost segregation study? I’m just going to have to implement, you know, to work with the depreciation recapture after the fact.” I think that there’s a couple of things missing there. One, you’re just talking about the partial asset disposition, of course, we can get some of that stuff off the books. That’s beautiful. But maybe talking about the tax arbitrage—could you talk a little bit about the tax arbitrage between the ordinary income and the capital gains rate, assuming that there will be some partial asset disposition downstream? Could you maybe just talk about that piece of it as well?

Kim Lochridge: Yeah, so I mean, the one is obviously getting those assets off the books, right? But you know, we have to understand, a lot of times people talk about recapture, but they don’t really understand how do we calculate recapture. And so in order to really have that argument, you have to understand how it’s calculated. And so many people don’t, right? And other CPAs are like, “Oh, well, if you sell it, you’re going to have recapture to pay and you’re going to have to pay it all back.” Well, one, you don’t pay it all back; it’s a prorated number. Number two, there’s things you can do to get rid of some of that recapture, just like the partial asset disposition. Number three, you can do a 1031 exchange and you don’t have to pay it back. Number four, you can do a lazy 1031 exchange and you don’t have to pay it back. You know, I mean, it’s like there are so many tools in the tool belt to apply to this that get you out of paying recapture, that that is the silliest reason why not to do cost-seg or partial asset disposition. So there’s a definite tax arbitrage. And when we first started this podcast, you talked about, you know, it’s not just the investments and the deals that you have, but it’s how are you managing the deals you have right now, you know? And this is part of it. It’s like if you’re not doing a good job managing this and staying on top of this and actually coaching your CPA or, you know, calling us and saying, “Hey, you know, we’ve done this, what can I do?” then you’re missing the mark because you’re literally leaving money on the table. And that’s sometimes more expensive than any recapture that you would have to pay, right? So I love just like educating yourself. Don’t just take what the CPA says as gospel and don’t take what ChatGPT says as gospel—like really dig into some of those things.

Brian Spear: Beautiful. And maybe in terms of action items, if you can maybe point somebody listening to this podcast with maybe some actionable items that when they wake up on Monday morning, what they should do to try to determine how they could improve their current status, their current portfolio—what action items could they take? Maybe could you give them a little bit of color, a couple things maybe they could do?

Kim Lochridge: Yeah, so I think you would be surprised at the number of people that don’t look at a depreciation schedule. Um, when I ask to send me your depreciation schedule, I get the 4562 or something out of their tax return, right? Which is depreciation and amortization, which is not the depreciation schedule. They’re not taking into consideration how much depreciation they’re going to have in each year. And in fact, frankly, they haven’t even seen a depreciation schedule because only 50% of the CPAs put it in the tax return. It’s not required, right? So when you have that depreciation schedule, it tells a picture. It’s like a novel. I am the biggest geek when it comes to depreciation schedules because I can sit there and read through a depreciation schedule and tell you exactly what has happened on the building. I can see if there was a partner buyout, I can see if you did improvements, I can see if there was a step-up of basis, I can see when you put it in service, I can see, you know, all kinds of different things—what the land value was and what transpired over the years and the course of you owning that building. So to me, it’s a story, right? It’s like a like this, uh, like encrypted story that I just I find fascinating. But um, but a lot of people don’t have and ever even seen their depreciation schedule and don’t really know what it is, and so they don’t know how to read it. And so I think that would be the first step: go look at your depreciation schedule. If you have building and land on your depreciation schedule that says, “Here’s your building, here’s your land,” and it’s 39 or 27 and a half years, you should probably start asking some more questions. So you might see that, and then you might see a couple of improvements. Well, this improvement was put into a 15-year class life, or maybe you did some appliances and that was five years, or you did this. But if your actual building with the place-in-service date and there’s nothing else on that date that has those years, then you know you probably are leaving money on the table. That would be probably the first actionable item. The second thing is to send it to me. Just email it to me and I’ll be able to be like, “Oh, here’s what you can do, and now let’s go talk to your CPA about it,” right? Because, uh, this is what we do—we’re a specialty. Right, there’s 17,000 pages in the tax code. No one person is going to be an expert in everything. And even a CPA—think of them as your general practice doctor, right? They’re your PCP, and they’re primary care and they know a little bit about a lot of things, right? But really, what we’re talking about is bringing in the brain surgeon or the specialist to it, right? And so when you’re when you’re realizing that you have a tumor, you know, and you’re thinking that there’s something that might need to be removed here, you’re not going to go to your PCP doctor to have that done. You’re going to go talk to a surgeon, you know, who’s who’s very capable. But in finance, we don’t think that way. We think that our CPA is going to handle everything for us, and that’s simply not true. And especially the more sophisticated you get, you know, you’re going to need a tax attorney or you’re going to need to have some specialists that come in as your tax team. And look, I’m not here to take business away from anyone, you just need more, you know, is probably the biggest message.

Brian Spear: Love every bit of that, exceptional stuff. And to your point about, you know, if everybody’s looking in the depreciation schedule, if you only have the land and then everything else is in 27 and a half years, how could you possibly know the value of that roof that Kim was referencing earlier so that when you add more roof to the building? I mean, how could you possibly write off—what portion would you write off of the depreciation schedule? It would be impossible to know, so yeah.

Kim Lochridge: And the CPA won’t know it either because they’re not an engineer, they’re not a builder, they’re not a roofer. They’re they’re not going to be able to establish how much of that million dollars you spent is carved out for a roof versus windows and, you know, HVAC systems and things that eventually get removed, you know, so.

Brian Spear: 100% right. And ultimately at the end of the day, they’re putting their name, their signature on the line, and if they can’t justify it and prove that that roof that you would otherwise have wanted to write off, right, is worth X, they wouldn’t go down the path of even trying to do partial asset disposition, thus leaving some money on the table there. Love every bit of that. Um, Kim, in a minute, I kind of want to pivot towards, you know, taking it to the perspective of value from a passive investor’s perspective, okay? So um, you know, getting to passive losses because this is where I think a lot of wealthy investors maybe dismiss some of the value a little bit too early upstream. Um, you know, partial asset disposition, I feel like it can be a bridge. It it shows why tax strategy is so important during lifecycle management. But can you just give us a little bit of color in terms of, um, high-income earners, wealthy folks investing from a passive perspective that might, um, not spend too much time employing about this, pushing on this, and think that this really doesn’t apply to them because they sit in a passive limited partner seat? Uh, share a little bit of color about how tactics like this—cost segregation studies, partial asset disposition—benefits them from the passive LP seat.

Kim Lochridge: Yeah, so on the passive side, um, you know, like this is what I’ve always told Brian and Kevin, like, you guys might have LP investors, but you’re not the only game in town. So chances are your investors are investing with other people, right? So I know I’m an investor and I invest with a lot of different groups and a lot of different things. And so what happens is when you start having a lot of passive activity—now this could be, um, you know, you have a W2 job and you’re using that money and you’re investing in other things, but then maybe you have a short-term rental or a long-term rental or you have something else on the side, maybe a second home where you rent out and, you know, all of these things start to to to to to delve into it. So think of your tax return as: you have your ordinary income from your normal job, whether that’s W2 or your business that you have, and then you have passive, and there’s a line down the middle. You can’t cross the line. But you can couple those things together in that activity. So if you end up having investors that come in, Brian, and you guys are using um cost segregation and you deliver—even though you’ve been delivering distributions all year—but now you deliver a negative K1 to that LP investor, that negative K1 can be used to offset any other passive income that they have had in other investments because it stays in the passive activity. So just because something’s passive doesn’t mean you can’t use it, it just means you need to get a little more creative on how to use it. Grouping elections can be very powerful when you have a lot of losses on one passive investment and then gains on another because, guess what? They go together and you can you can meld them together as kind of one. So um, you know, just because in the past you’ve been told that, oh, this won’t help you because you’re passive, but now you’ve got to look at this every year. You can’t just say, “Oh, I’m not going to do that, you know, because it won’t benefit me this year.” It’s every single year you have to go back and start looking at it again. I would say, how could it benefit me? Now, the other thing that I really like about banking passive losses is that now you kind of have this creative side about you, especially if you’re an investor. Because now you have all these passive losses banked up and you can’t use them, and they carry forward to the subsequent years. But now, this is a year I’m carrying forward a bunch of losses. Well, if you sell one of those properties, it jumps the line and all those losses that you banked up all those years will help offset the gain from the sale of that property. But also, it converts to your ordinary and now it gets unlocked and you can use that to do other things like offset, uh, a cash-out of a 401k or offset, you know, taking, um, you know, converting a 401k, right? For instance, all these things, you kind of cross this line. Now it creates a tax strategy, uh, because now you’re getting creative. What can I do with this and when would I be able to implement this? So, um, you know, I like banking the passive losses because it’s like putting money in the bank, and I can use those next year or I could save it up and say, “Okay, now when I’m ready to do this, I don’t have to pay tax on that activity,” right? Because I thought through it and I was able to strategize that plan.

Brian Spear: Yeah, love every bit, and I couldn’t agree more. Again, that’s proactive tax planning as opposed to just simply playing defense. There’s so many things that I feel like over time um folks begin to learn, right? Far too much of society is spent coupon clipping. They spend an inordinate amount of time, energy, effort, hours trying to save a nickel or a quarter at the grocery store, but spend zero time at all that would save them tens of thousands, hundreds of thousands of dollars, and ultimately millions of dollars over time by proactive tax strategy. So, beautiful color here. Again, whether you’re a real estate professional actively involved, you can use those immediately; whether whether you’re passive, being proactive in terms of your tax strategy obviously is paramount. Uh, but the next question that I would kind of bring to to the forefront here is: when when do people get maybe too clever with their tax strategy? You know, where have you seen investors becoming too tax-driven, right? Where they get so enamored with the tax benefits and the strategy that they make some mistakes along the way? In other words, when does tax optimization start leading people into mediocre deals or bad sequencing or false precision? Any any sort of mistakes you’ve seen like that?

Kim Lochridge: Yeah, I actually have two examples of this. Um, you know, I have people coming to me all the time like, “What’s the best property I could buy to get the most tax deductions in cost-seg?” you know? And obviously, those are car washes and gas stations, like everybody well you should know that, right? They have fantastic rules um and special rules. But, you know, I have people that come in like, “Oh, you know, I sold my business and I have all this money, and I’m going to go buy like five gas stations.” Like, and it’s going to offset your tax liability. Well, that’s great, but what happens when you have all that cash flow next year and you just basically blew all of your depreciation in one year and you don’t have anything left because you bought this one asset type, you know? And so, you know, I really like to educate. That’s one example where you’re not really thinking about the future years, you know, because you want to balance it. If it was me and you sold your business, you know, what I would do is kind of structure you to, you know, maybe buy one car wash or gas station to get the immediate tax deductions and we can pull levers to figure out what those numbers look like, but then start looking at maybe, you know, mobile home parks or drive-thrus or, you know, some other asset class to kind of fill that out and not just do it strictly for the tax benefits, right? The second example I have on a smaller scale is, you know, we have our material participation loophole for short-term rentals. And look what has happened, you know? I mean, you can have two W2 income earners who are marrying filing jointly, and then they they’ve decided to go buy a second home and put it on a short-term rental, and they get these humongous tax deductions because they did these cost-seg studies. Well, what’s happening now is over the last 10 or 12 years, we’ve had this huge influx of short-term rentals to the market, and now nobody’s making money in the short-term rental market anymore. I don’t care who you are, you know, you’ve definitely seen a decline because it’s simply supply and demand. So now they go out and they buy these these huge million-dollar homes or multi-million dollar homes, and they can’t rent them out for nothing when they thought the cash flow—because they had some property manager that told them that they were going to be making hand over or fist money four times higher than what it would be if it was a long-term rental—and now they’re screwed. And we’re seeing these short-term rentals on the market everywhere just like bleeding, you know? So, you know, those are two examples of doing something specifically for the tax benefits without thinking about the future or how this is going to impact you later. You know, there’s a fine balance, you know, between all of them. You should never let the tax consequences wag the investment dog.

Brian Spear: And I do feel like that is a good place to end here because this really only works when when good structure sits on top of really good assets, really good investments. So, rounding it out with with with the final question here, Kim, I would always love to ask this: if someone could only remember one sage investing lesson from your entire life experience, what should it be?

Kim Lochridge: Well, I thought about this a lot and, you know, I think there’s two things that I’ll leave you with. You know, one of them is just, you know, I’m a very rebellious—I was a very rebellious child and a very rebellious person, just my spirit. So I learned to just don’t take what anyone tells you as gospel, like question everything. Um, you know, so I think the one lesson if we want to give it give this away to, you know, to all of the listeners is that, you know, as much time as it takes to dig in and educate yourself, it’s it’s worthwhile. But don’t believe everything you hear on the internet, right? So you’ve got to be really careful—like truly do the research, don’t do the quick research and cut corners um and then take whatever, you know, ChatGPT gives you as gospel. And also, you know, it’s it’s good to have those trusted professionals, right, that are on your team. Don’t don’t just stick with your PCP, right? Make sure that you have your specialists to help you. But the last thing that I that I’ve learned is is, you know, is is my famous quote, and I have said it before: “We do believe everyone should pay tax, but there’s nothing in the code that says you have to leave a tip.” So we have tax codes here that allow us to take the tip off the table. Use them, you know, use them and use them wisely. And I think that’s probably the biggest takeaway.

Brian Spear: Love love that, Kim. Um, I’m going to lean in a little bit, double-click into the first portion that you shared in terms of the the sage principles. So if we need to do the resource dig in, right, we’ve got to do the research—what resources should people trust versus AI? Where should we go? How do we get those resources?

Kim Lochridge: Yeah, well, I mean, you can ask the same question about news—like, where do you go to get real news, right? Because like, now anymore, it’s just all opinion-based, and so that’s kind of like the internet. It’s like, it’s so hard to discern. I think it’s important to get a consensus from multiple sources. I think it’s important to really dig in, and you know, if you can start your research on chat to you, talk to your CPA about it, talk to your professionals, get a tax attorney if you need to, but really start getting a consensus. Don’t just take one opinion or one person’s viewpoint of it. And really just, where is our common sense these days, right? Where is our ability to discern if it walks like a duck and talks like a duck, it’s probably a duck. Don’t try and disprove that. But, you know, look at it from both ways and play the devil’s advocate. And if your CPA or somebody says, “Oh, you can’t benefit from that,” talk to somebody else and then really start digging into both sides and and and really dig in. It’s very difficult these days. It’s difficult for our children, it’s difficult for our teens, it’s difficult for our 20-somethings. It’s it’s almost impossible, you know, to really get true factual data anymore, and so it’s a lot harder than it seems. So I would say go with multiple sources of information, not just, you know, one thing.

Brian Spear: All right, Kim. Wonderful as always. Before we get out of here, could you just let people know, where would people reach out to if they want to learn a little bit more about you and what you do to serve them along the way?

Kim Lochridge: We’ve built out a really robust information website, so our website is www.engineered—with the “ed” on the end—tax services—with the “s” on the end. So, www.engineeredtaxservices.com. And there is a learning hub on that website. There’s webinars, there’s podcasts, there’s recordings, there’s a frequently asked questions page. I think that there’s—we have our YouTube channel that has over 200 FAQs, just small tidbits of, you know, different things that you can learn from. But also, if you go to our team page, my contact information is there. You can find my email address and my phone number if you want to reach out to us. Please let us know the effectiveness on the show, you know, because it does help a lot with marketing for us. And we also want to give Brian credit as well for for bringing this information to the market and to all of the listeners.

Brian Spear: All right, Kim. Well, thank you very much. I will obviously link to that in the show notes, but we will get out of here for today, guys. And that’s why this matters, because for many investors, tax strategy gets treated like year-end cleanup. But as Kim makes clear, it is not cleanup; it is design. It shapes how you hold, how you renovate, how you document, when losses matter, and when opportunities disappear if you wait too long. So as you think about your own portfolio, here’s the better question to sit with: where might there already be trapped value inside assets you own today simply because the structure has not been optimized? And if one of those opportunities is partial asset disposition, remember the urgency here—in certain cases, if you do not address it this year, the tax benefits are gone forever. That’s not fear, that’s timing. So thank you for listening to The Sage Investor. If this episode helps sharpen how you think about after-tax compounding, share it with another investor who might be doing really well with the returns on paper but might not yet be optimizing what survives after taxes. We have so much more to come, so hit that subscribe button and I look forward to having you join us on the next one. But until next time, you be great.

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