There are three reasons to invest in real estate: Cash Flow, Appreciation and Tax Breaks.
If you have real estate income that zeroes out when you pay direct expenses (mortgage, property tax, repairs, property management and the like), you need to pay attention to that property. That means you don’t have any cash flow and that is not why you invest in real estate.
If you still have net income after the direct expenses (and you should), the next type of expenses to deduct are the indirect expenses. Those are the general and still legal expenses like travel, cell phone, home office, auto and the like. Make sure you’re following the rules for deductions (ordinary and necessary to the production of income) and that you have good record keeping to prove the expense and deductibility.
And then if there is still income or if you are able to deduct real estate passive losses against your other income, then it’s time to talk about depreciation.
That’s the brief summary that leads up to one huge advantage ONLY available to real estate investors. You can legally manipulate depreciation.
If you want to accelerate depreciation, you can separately list personal property items and leasehold improvements and depreciate those over much shorter time periods. Less time = more depreciation = real estate loss = less tax (for some people.)
That is a long introduction to cost segregation studies. The IRS realized early on that depreciation was a huge benefit and the ability to manipulate it maybe it even better.
As a result they came out with a guide as to what makes an acceptable cost segregation. That’s the listing of the property elements to determine what is 5 year, 15 year and 27.5 years or 39 years. The whole thing is called a cost segregation study.
The IRS is very strict as to what makes an acceptable cost segregation study and what just isn’t going to work.
If you’ve followed along so far and realize that more depreciation is exactly what your tax strategy needs, then you might want to pay attention to the next part.
You have a choice: You can pay someone $5,000 to prepare the study (and that’s per property). Or, you can pay me less than $500 for me to teach you how to do it yourself, legally and safely.
In fact, it’s not even close to $500. It’s close to $100. And once you learn how to do it, you can prepare the studies for all of your properties.
Interested? Then check out the Cost Segregation Home Study Course