Tax Strategies for Real Estate Investors - Philadelphia CPA
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Tax Strategies for Real Estate Investors

Tax Strategies for Real Estate Investors

You can utilize these 4 tax strategies with an existing building, one that you are buying, or a building that you are renovating. These tax strategies with put cash in your pocket, or reduce or current tax liability.

  1. Accelerate depreciation on certain components of building
  2. Identify Repairs
  3. Allocate less to Land
  4. Retire old building components

Accelerate Depreciation with Cost Segregation

A cost segregation study can produce enormous tax savings through accelerated depreciation on specific structural component parts of the building ; and increase your cash flow on the property. Also, by making the proper cost allocations between land and the building can maximize depreciation deductions. Land, unlike a building is not subject to depreciation–therefore, you want to allocate as much to the building as possible, through appraisals or local tax assessment, or estimated replacement cost. Best is a qualified appraisal.

Repair Deductions

We need to thank the IRS for its recent 267 pages of repair-versus-capitalization regulations. Example–the ability now to make an improvement and write off the cost of the old component–you replace a roof on your rental house for $30,000; before the new regs, you had to continue depreciating the old roof and depreciate the new one. Now, you can write off the old roof by identifying its undepreciated basis by using the results of a prior cost segregation study, the producer price index to discount the replacement cost to an adjusted basis amount, or the pro rate allocation of the original cost to the replaced roof.

Repairs deductions provide for powerful tax deductions, as they are worth more than depreciation the is expensed over a number of years.

Allocate Less to Land

Here’s a way to turn a non-depreciable asset into a depreciation vehicle. Please see above comments that apply to this section as well.

Retire Old Components

The new repair regs involve the renovation of an existing business. Under the old laws, when you renovated a building, you could not write off the remaining basis of the components.

The IRS changed that, and now you can assign a value to the old components and write off the remaining basis.

If you own buildings that you use in your business or as rental properties, you may want to a cost segregation study to optimize the tax deductions, and increase your cash flow on the property.