Income-producing real estate creates powerful tax advantages for the ownership group. Depreciation is like magic. The government allows a tax deduction for something you did not pay for and that continues to appreciate. This is another wealth-building and cash-flow strategy. Consult with a qualified accountant and other team members when developing this strategic plan. Here is a look at a simple scenario:
As an example one property I acquired, was a 450-unit complex, valued at $14.7 million. After deducting 20% land cost which is $2.940 million. That left a permanent structure value of $11.76 million. The $11.76 million can be depreciated over 391/2 years. This magic formula created a straight-line depreciation of approximately $301,538 annually. That created a reduction of taxes owed for the passive investors (LP) on their personal income before taxes.
Real estate ownership provides standard tax deductions and write-offs. The IRS tax code is full of these deductions. When planning an exit and operation strategies work with a qualified accountant to take advantage of all deductions.
Cost segregation can be an extra alternative to standard deductions when capitalizing on improvements. This accounting strategy is a function to grow your wealth and increase property values. There have been many cases where cost segregation doubles the depreciable amount.
Let me know today if you are a real estate investor who believes in the power of this as a wealth-building strategy and would like to see some options.