I think most real estate investors understand how depreciation creates a significant tax advantage. Depreciation is the means that allows an investor to have a positive cash flow while claiming tax losses. I think we can all agree that spending a lot of cash to create tax losses is a less than desirable way of saving money on your tax return.

I suspect though that many investors have no idea just how much depreciation can be taken in the early years of a property’s life. Spreading depreciation out over 27.5 years does help the bottom line, but if it was possible to spread a lot of that depreciation over a 5 year period I think you can see how that might prove to be a far better tax benefit.

Recently I talked about land improvements which are depreciable though land clearly is not. I gave you a taste of what can be carved out as a 15 year land improvement. Clearly, depreciating an asset over 15 years is better than 27.5 years. If you didn’t read the post you might want to take some time to read it. [Read more...]

One important lesson that every investor learns sooner or later is that land is not a depreciable asset. You may hear it from your tax preparer, a real estate broker, another investor or others. I’m hoping that no one found this out in an audit.

What many might not be aware of though, is that land improvements are deductible. There are many improvements that we make to land. Some of which you might not think of generally as improvements.

Why take the time to make this distinction? [Read more...]