| Tax deductions are not the top priority for most | | | | Reviewing personal expenditures can generate |
| individual real estate investors. They often work out of | | | | additional tax deductions Items used for business such |
| their home with no employees, other than those on-site | | | | as computer, printer, office supplies, seminars, |
| at the property. Challenges (aside from tax deductions) | | | | association dues, and business publications can be |
| include selecting what property to purchase, screening | | | | deducted. Long distance business phone calls can also |
| tenants, repairs, managing expenses, obtaining | | | | be deducted. Self-employed persons can deduct the |
| financing, and deciding when to sell. This article | | | | entire cost of health insurance premiums. |
| addresses tax deductions sometimes over-looked by | | | | Record keeping for tax deductions does take a |
| real estate owners. | | | | modest effort. However, the federal income tax |
| Tax deductions reduce taxable income but do not | | | | savings make it worth the effort. |
| directly reduce taxes. For example, $10,000 in additional | | | | Cost segregation produces tax deductions and |
| tax deductions will generate $3,500 in federal income | | | | reduces federal income taxes across the country and |
| tax savings ($10,000 X 35%), assuming a 35% federal | | | | in every size market. Below are just a few examples |
| income tax rate. Since most require a cash | | | | of cities where cost segregation generates meaningful |
| expenditure, increasing actual expenses to increase | | | | tax deductions. |
| tax deductions is not desirable. Let's review fine-tuning | | | | City: |
| the depreciation schedule and reclassifying existing | | | | - Las Vegas, NV |
| expenditures to increase deductions. | | | | - Boston, MA |
| Real estate depreciation is a potent but underutilized | | | | - Tampa, FL |
| source of tax deductions Real estate depreciation | | | | - Hartford, CT |
| schedules are commonly established by just | | | | - San Francisco, CA |
| separating land from the improvements. This is | | | | - Memphis, TN |
| analogous to asking a world-class pianist to play a | | | | - Miami, FL |
| piano which is not tuned and has several keys which | | | | - Denver, CO |
| are not functioning. The results are just not as good as | | | | - Phoenix, AZ |
| they should be. | | | | - Orlando, FL |
| Congress has provided depreciation as a tax | | | | - Boise, ID |
| deduction to encourage real estate ownership and | | | | - Chicago, IL |
| investment. Numerous court decisions have provided | | | | - El Paso, TX |
| clear guidance for accurately and precisely | | | | - Oxnard, CA |
| depreciating real estate. Cost segregation can typically | | | | - Rochester, NY |
| increase real estate depreciation by 50-100% in the | | | | - Cincinnati, OH |
| first 5-7 years of ownership. | | | | - Jackson, MS |
| Owners can claim a tax deduction windfall for | | | | - San Jose, CA |
| properties owned more than one year by | | | | - Fresno, CA |
| "catching-up" previously under-reported depreciation. | | | | - Charleston, SC |
| After obtaining a cost segregation report, you can | | | | - Omaha, NE |
| "catch-up" depreciation without filing any amended tax | | | | - Oklahoma City, OK |
| returns. | | | | - Buffalo, NY |
| Another meaningful source of tax deductions is to | | | | - Albuquerque, NM |
| scrutinize any cash expenditures which are being | | | | - San Antonio, TX |
| capitalized. Have minor repairs been capitalized in | | | | - Charlotte, NC |
| error? Are there more significant repairs which do not | | | | - Allentown, PA |
| clearly extend the life of a component? Discussing | | | | - Austin, TX |
| these items with your accountant can yield additional | | | | - Baton Rouge, LA |
| tax deductions Also review items which were | | | | - Jacksonville, TN |
| capitalized in prior years; can you claim any of them as | | | | Cost segregation produces tax deductions for virtually |
| current year tax deductions? | | | | all property types, including the following: |
| Child labor can be good when they are your children | | | | Property Type: |
| and you claim a tax deduction. Consult your | | | | - Used car lot |
| accountant or CPA but this can generate additional | | | | - Research and development |
| tax deductions of $5,000 per child, upon which they | | | | - Nursing home |
| pay no taxes. (If they are feeling generous, they may | | | | - Lumber storage |
| return the money as a tax-free gift.) | | | | - Truck stop |
| A tax-deductible vacation is an attractive option to | | | | - Tennis club |
| make an expenditure deductible. Simply plan a vacation | | | | - Hospital |
| around a business trip for a meeting or seminar. Your | | | | - School |
| airfare and hotel for the business period are deductible. | | | | - Movie theatre |
| Hotel before or after the business activity and your | | | | - Lodging |
| spouse's airfare (assuming that your spouse is not | | | | Almost every industry, including the following, can |
| involved in business) are not deductible. Half of meals | | | | generate cost-efficient tax deductions by using cost |
| during period with business activity are deductible. | | | | segregation. |