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By ignoring generous IRS guidelines when establishing depreciation schedules, over 90% of real estate investors are unintentionally overpaying federal income taxes. Moreover, they usually pay federal taxes years or decades before they actually have to pay. Even as these IRS guidelines are rather new, they offer ample benefits. Since this is a relatively new issue, many accountants have not integrated the new IRS depreciation guidelines into their practice. Savings for real estate investors are vital -beyond $50,000 to $1,000,000 at the start. Cost segregation converts income taxed at 35% (ordinary income) to income taxed at 15% (capital gains). It also delays payment of income taxes, typically for 5 to 10 years. Many real estate investors are not aware of the benefits of increasing real estate depreciation. Their usual question is, "doesn't exaggerating my depreciation mean that I will simply be transferring taxes from today until when I sell the property?" This is an universal false impression and the reply is a resounding "no." Here are a couple of benefits of increasing depreciation: 1. Creating capital gains income from ordinary income. Tax Refunds PAYE 2. Rescheduling income up to the time a gain on the property is realized. The alteration of ordinary income into capital gains income is relative to the technicalities involved in the allocation of the gain on the sale. Many, if not almost all, accountants from the start consider it as merely a matter of time. Still, when the procedures on determining gains on sale are taken up, accountants readily understand that increasing depreciation can result to paying taxes at the capital gains rate as against the normal income rate. If you sold a property lately, it is essential to rectify the depreciation schedule since the additional depreciation will be taxed at the capital gains rate and not on the ordinary income rate. Let's say an investor sold a property at the later part of 2005, performs a cost segregation study and raises deprecation by $100,000. The net result is the ordinary income taxes will be reduced by $35,000 ($100,000 x 35%) and the capital gains taxes will be increased by $15,000 ($100,000 x 15%). . This endows the owner a $20,000 savings in federal taxes easily by correcting an erroneous depreciation schedule after the property has been sold. When enlightened with the possibility of increasing depreciation and reducing federal taxes, several real estate investors ask, "isn't my accountant doing this for me?" If you would like to claim your PAYE tax refunds then contact us today
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