Taxes - Karen's Perspective

Depreciation Advantage for Hold Properties

Tax forms

Tony Robinson, one of the coaches for our local Mastermind coaching groups, wrote the following article on the value of depreciating your properties. Depreciation gives you HUGE tax advantages which is a large income stream that not everyone considers when they’re contemplating becoming a landlord.

I hope the following explains some of the advantages you may not have considered. If you have any questions about depreciating properties, please add them here to the comments section so we can clear up any confusions.

Here’s a synopsis of Tony’s article:

Many of us using the long term hold strategy fail to capitalize on one of the true benefits of owning real estate. Though the benefits are many, I find the ability to offset income by maximizing depreciation to be the most valuable of all. Did you know that depreciation allowances offset the gross income received on real estate?

Let me explain. The IRS extends the benefit of depreciation to owners of rental property. Here, the government is actually giving us an incentive to own real estate! The depreciation factor for single family residential property is 27.5 years. This means that you can take depreciation on the “dwelling” spread out over 27.5 years.

An example of how depreciation works is as follows:

The IRS is Liening Hard

When times are good and cash is flowing, Congress tends to pick on the IRS. Times, like now, when the government is out of money, Congress prefers to ignore any IRS pursuit of the public.

Look out, here comes the IRS.

To give you an idea of their added zeal, in 1999, the IRS issued 168,000 liens. Last year, in 2009, they issued 966,000. Your odds of hearing from the Internal Revenue Service have improved.

Here in Greensboro, Uncle Sam just put 20 more agents in the field. Timothy Geitner said the government is going to spend $250 million for tax compliance to generate $2 billion worth of revenue this year.

Right. According to the US Treasury, the IRS is going to spend $250 million going after people who have under-paid on their taxes and believe they will be able to raise an additional $2 billion from their efforts.

Publicly filed tax liens can destroy your credit as well as wreck careers and businesses. They can attach to your car, home, other real estate, even accounts receivables if you own a business. The IRS is ahead of anyone else who may file a lien against you.

Many employers use credit histories to screen applicants, even though credit reports are meant to determine credit-worthiness, not job-worthiness. Repossessions, collections, high credit card balances could cost you the job you want.

Recorded tax liens can seriously hinder your ability to earn a living, pay off your debts, even stay off government assistance! Once you do the right thing and pay off your tax lien, it can stay on your credit for 7 years.

This is not the news any of us wants to hear, however, our growing monetary deficit is pressuring the IRS to get even tougher.

If I can make a suggestion, pay your tax bills before you pay anything else.

04 / 07 / 2010
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Cheating on Your Tax Return? Someone you trust may get a reward for turning you in!

Did you know there is a federal rewards program that pays people to turn in others for cheating on their tax returns? Who’s looking over your shoulder? Should you be concerned? And what do you know that the Feds may want to hear?

Many trusted employees have access to records that their employers entrust to them – accountants, bookkeepers, even those being paid to shred documents.

In 2006, Congress directed the IRS to pay increased rewards to informants of at least 15% and as much as 30% of taxes, penalties and interest collected where $2 million or more is brought in.