Paying Fewer Taxes on Your Income (A Real Estate Investor’s Strategy)


Advice and assistance with taxes to help taxpayers save money by claiming legitimate tax deductions. We need to lower income taxes. Many opportunities exist, nevertheless, for real estate investors to minimize their federal income tax liability. Congress has established income tax breaks to encourage real estate investment. Depreciation, cost segregation, tax-deferred exchanges (1031 exchanges), casualty losses, and the handling of capital gains are all examples. Those who invest in real estate and take advantage of these tax breaks may be able to avoid paying federal income taxes altogether. Real estate investors take on less risk when their tax burden is lighter.

Taxable income is used as the basis for determining taxable income. To determine taxable income, take total revenue or income and subtract all permitted expenses. Investors in real estate may count on a consistent stream of income. Cash basis and accrual basis numbers could differ slightly. The volume of revenue, however, is notoriously difficult to alter significantly. However, there is much room for discretion when figuring out costs. Repairs and whether to depreciate or write them off are examples. This can lead to a significant reduction in taxes.

As a non-cash expenditure, depreciation adds to overall costs and decreases taxable revenue. The idea behind real estate depreciation is that land improvements age and deteriorate over time. Real estate owners might deduct a portion of their initial investment to offset this physical wear and tear. (In practice, upgrades usually gain value for five or ten years, even though depreciation is recorded for accounting purposes.)

Federal income taxes are delayed and reduced through real estate depreciation. Revenue taxes are postponed from when revenue is made until the asset is sold or a gain is recognized from the investment is realized, thanks to depreciation. (With a 1031 exchange, investors in real estate can postpone taxation of capital gains from the sale of an asset.) Depreciation helps lower taxable income because it changes the nature of income from ordinary to capital gains. Income tax rates rank at 35% for wage and salary income and 15% for capital gains. It is feasible to have most of the income protected by depreciation reclaimed at 15%, even though some depreciation is recaptured at 25%. In addition, the savings are substantial even if depreciation only reduces the tax rate from 35% to 25% and delays payment of taxes for several years.

Real estate investors often employ the specialized cost segregation service to maximize depreciation. To fine-tune the real estate depreciation schedule, real estate appraisers or engineers often carry out cost segregation. Up to 130 components can be identified and quantified as candidates for short-life depreciation through cost segregation. The construction of a rental home is depreciated over 27.5 years, while a commercial building takes 39 years. Depreciation schedules of 5, 7, or 15 years are typical for assets with a short useful life. A cost segregation report can help real estate investors write off 20-40% of an asset’s cost basis as an immediate tax write-off. Depreciation can be increased by 50% to 100% in the first five to seven years of ownership if the cost basis is shifted from long to short-life components.

Real estate investors can benefit significantly from depreciation to lower their taxable income. Cost segregation allows real estate investors to maximize their depreciation benefits.
In all sizes of markets, cost segregation results in tax deductions and lower federal income taxes. Below are a few scenarios where cost segregation results in sizable tax savings.


City of New York
Hartford, RI
CT’s Hartford
California, San Francisco
Locale: Memphis, Tennessee
Site: Boston, Massachusetts
LA, California
Location: Baltimore, Maryland
Orland, Florida
Denver, Colorado
The Bham Area of Alabama
San Francisco, CA
Hnaul, Hnai
The City of Bakersfield, California
Lakeland, Florida
Dayton (Ohio)
WI – Milwaukee
In the city of Santa Rosa, California
Oregon’s Portland
This is the city of Jacksonville, Tennessee.
Location: Colorado Springs
Ca., Fresno
SC’s Greenville
Where: Worcester, Massachusetts
Virginia’s Capital City, Richmond
The Capital of Texas: Austin
Louisville, Kentucky
Locale: Albuquerque, New Mexico
Place: Massachusetts’s Springfield
Where: In or Near Syracuse, New York
Nearly all real estate forms can benefit from the tax write-offs made possible by cost segregation. Developmental Research Property
Automobile junkyard
Thrift store
Cinematic setting
Theme party
Travel Plaza Truck Stop
Place of business
Cost segregation can be used to efficiently produce tax deductions in almost any industry, including the ones below. Golf courses and country clubs as an economic sector
Retailers of Construction Goods
Transportation through Truck
Crafts using printing
Production of Chemicals
Storage and warehousing
Industrial Production of Minerals
Production of Food
Production of Computers and Electronics
The state of Texas’s most prominent property tax protest firm is O’Connor & Associates. They offer tax reduction services to 95% of their long-term clientele and serve the four major cities of Houston, Dallas/Fort Worth, San Antonio, and Austin. Property owners benefit from their contingency pricing structure if they see a decrease in their assessed value. O’Connor & Associates annually represents clients in protests against their property tax assessments through the following channels: binding arbitration, disproportionate appraisals, homestead exemptions, judicial appeals, informal hearings, and presentations before the Appraisal Review Board. Harris County Appraisal District, Dallas Central Appraisal District, Bexar Appraisal District, Fort Bend Central Appraisal District, and Tarrant Appraisal District are all among the areas O’Connor & Associates serves.

Patrick C. O’Connor, a graduate of the Appraisal Institute’s MAI program and the current president of O’Connor & Associates, has held this position since 1983. He has written extensively on lowering property taxes in state and national periodicals and is a senior property tax consultant in the form of Texas. He has expanded our services to include everything from cost segregation analysis to help you save money on your taxes to business valuations and evaluations, all of which he has set the bar for.

Read also: