In this episode of the Slash Tax Podcast, host Heidi Henderson welcomes a titan of the specialty tax industry, Michael D'Onofrio. As the Chief Product Officer at Engineered Tax Services (ETS), Mike brings over 18 years of experience in tax consulting and helping maximize cash flow, having worked with some of the largest real estate developers and investors in the United States.
What You Will Learn in This Episode:
- The Definition of Cost Segregation: Why it is essentially an “appraisal for asset identification” rather than valuation.
- The Power of 100% Bonus Depreciation: How the 2025 tax landscape allows for massive immediate write-offs.
- The “Big Three” Property Types: Why gas stations, car washes, and oil changes offer the highest tax-saving potential.
- Real Estate Professional Status (REPS): The importance of material participation and how to properly document activity to withstand IRS scrutiny.
- Specialty Tax Expansion: How Engineered Tax Services is moving beyond cost segregation into 1031 exchanges, insurance, aviation, and equipment investment programs.
Deep Dive: Cost Segregation and Asset Identification
Many investors view depreciation as a flat line over 27.5 or 39 years. However, Engineered Tax Services takes an itemized approach. By segregating a building into its individual components—such as flooring, lighting, mechanical systems, and landscaping, ETS can reclassify assets into shorter recovery periods.
This engineering-based report allows the CPA to front-load depreciation, providing the owner with immediate liquidity. As Mike explains, it is not about taking more depreciation in total, but about the Net Present Value (NPV) of that money today.
High-Impact Properties: The Big Three
While almost any property can benefit from a study, Mike identifies the “Big Three” as the strongest performers:
- Gas Stations
- Car Washes
- Oil Change Facilities
Due to the high volume of specialized equipment and specific IRS revenue requirements, these properties often allow for an immediate write-off of nearly the entire building basis (excluding land). For an $800,000 building purchase, this can mean an $800,000 first-year deduction.
The Importance of Documentation and REPS
A major highlight of this episode is the discussion on Material Participation. Mike and Heidi caution investors against the “Instagram advice” regarding the short-term rental loophole. While the threshold for material participation may be lower for short-term rentals (100 hours in certain cases), Engineered Tax Services emphasizes that this must be active management, not just investment research.
Documentation is the key to surviving an audit. ETS recommends keeping a rigorous activity log that proves active involvement in the management and maintenance of the asset.
Expanding the ETS Ecosystem
As the Chief Product Officer, Mike has led Engineered Tax Services into several new service lines to provide a 360-degree financial strategy for clients:
Engineered Insurance Services
Because ETS already collects detailed data on building materials, roofs, and tenant types during a cost segregation study, Engineered Tax Services is uniquely positioned to help clients secure better insurance rates. By merging with an experienced team out of Cleveland, ETS now offers comprehensive insurance agency services for all property types.
Transparent 1031 Exchanges
Engineered Tax Services has disrupted the 1031 exchange model by acting as an intermediary without charging the standard administrative fees. Instead, ETS provides transparency on the interest earned on the “carry” during the exchange period, ensuring the investor keeps more of their capital.
Equipment and Aviation Investment Programs
One of the most exciting developments discussed is the equipment investment strategy. This program allows clients to invest in construction equipment (like scissor lifts and telehandlers) with as little as 10% down. Because this equipment qualifies for 100% bonus depreciation, an investor can potentially write off a million dollars of equipment with only $150,000 of initial capital.
