Tax tips and assistance to assist taxpayers in describing options for tax reduction and tax cuts through legal tax deductions. Income taxes are too high. However, real estate investors have found many options to lower the level of federal income taxes. Congress has provided a number of income tax benefits for real estate investment. These include depreciation, cost segregation, tax-free exchanges (1031 exchanges), casualty losses, and capital gains treatment. Real estate investors using these income tax benefits can reduce or even eliminate federal income taxes. Lowering taxes reduces the risk borne by real estate investors by having more liquid capital available.

Income taxes are calculated on the basis of taxable income. Taxable income is calculated by deducting allowable expenses from income / income. The amount of income for real estate investors is generally a fixed number. There may be modest variations between the cash basis and the accrual basis. However, it is usually difficult to materially change the level of income. However, there are many options to judge when calculating expenses. These include whether to capitalize or spend repairs, the level of debt and interest, and depreciation. The resulting tax reduction can be substantial.

Depreciation is a non-cash expense that increases total expenses and reduces taxable income. Real estate depreciation is based on the concept that improvements to the land physically deteriorate over time. Real estate owners can depreciate a portion of the cost basis to account for this physical depreciation. (In reality, the market value of improvements generally appreciates in value over five to 10 years, although depreciation is recorded for accounting purposes.)

Real estate depreciation differs and reduces federal income taxes. Depreciation deferring income taxes from the time the income is earned until the property is sold or a gain on the property is recognized. (Real estate investors can defer recognition of the gain on the sale of the property using a 1031 exchange.) Depreciation reduces federal income taxes by converting the character of ordinary income income to capital gains income. The maximum income tax rate for ordinary income is 35%, while the maximum income tax rate for capital gains is 15%. Although some of the depreciation is recovered at a rate of 25%, it is possible that much of the income is protected by depreciation recovered at 15%. Also, even if depreciation simply lowers the tax rate from 35% to 25% and deferred tax payments for a period of years, the savings are significant.

Cost segregation is a specialized service that real estate investors use to maximize depreciation. Cost segregation is usually performed by real estate appraisers or engineers to adjust the real estate depreciation schedule. Cost segregation identifies and quantifies up to 130 components that qualify for short-term depreciation. The building structure depreciates over 27.5 years (residential rental property) or 39 years (commercial property). Short-lived properties generally depreciate over 5, 7, or 15 years. Obtaining a cost segregation report often allows real estate investors to allocate 20 to 40% of the cost basis to short-term depreciation. Shifting a significant portion of the cost base from long-lived components to short-lived components can increase depreciation by 50% to 100% during the first five to seven years of ownership.

Depreciation is a powerful income tax reduction tool available specifically for real estate investors. Real estate investors can magnify the benefits of depreciation using cost segregation.
Cost segregation produces tax deductions and reduces federal income taxes nationwide and in markets of all sizes. Here are some examples where cost segregation leads to significant tax deductions.

Town:

• New York, NY
• Bridgeport, CT
• Hartford, CT
• San Francisco, CA
• Memphis, TN
• Boston, MA
• Los Angeles California
• Baltimore, MD
• Orlando, FL
• Denver, CO
• Birmingham, AL
• Sacramento, CA
• Honolulu, hello
• Bakersfield, CA
• Lakeland, FL
• Dayton, OH
• Milwaukee, WI
• Santa Rosa, CA
• Portland, OR
• Jacksonville, TN
• Colorado Springs, CO
• Fresno, CA
• Greenville, SC
• Worcester, MA
• Richmond, VA
• Austin, TX
• Louisville, KY
• Albuquerque, New Mexico
• Springfield, MA
• Syracuse, New York

Cost segregation produces tax deductions for virtually all property types. Kind of property:

• Investigation and development
• Automatic rescue yard
• Manufacturing / Processing
• Used car lot
• Cinema
• nightclub
• Motel
• Truck stop
• Commercial building
• Greenhouse

Almost every industry, including the following, can generate profitable tax deductions through the use of cost segregation.
Industry:

• Golf courses and country clubs
• Construction Supply Distributors
• Truck transport
• Printing activities
• Editors
• Chemical manufacturing
• Warehousing and storage
• Manufacture of mineral products
• Food manufacturing
• Computer and electronic manufacturing