The Real Estate Conundrum
Real estate, as an investment vehicle, is pitched in a very rudimentary way to hopeful investors. “Just buy it right now and flip it for a higher price!” Such a sentiment is quite common, especially in an increasingly competitive housing market in Seattle. Unfortunately, turning a meaningful profit here is not always smooth sailing.
Let’s consider one of the major implications no one considers i.e. Taxes. Buying and selling property involves large amounts – amounts that are guaranteed to attract the attention of the IRS and other relevant authorities. Additionally, there’s also the matter of a property failing to appreciate. Such a property ends up as a liability, not an asset.
Knowing the risks and challenges the typical investor may face with real estate, an individual should quickly turn to an expert CPA in Seattle, WA to find the most lucrative way forward.
Fighting Depreciation
One of the best ways to hedge against the massive costs of acquiring property is to focus on tax deductions. The idea with depreciation deductions is simple – Instead of writing off the entire cost of the property in one go, the cost can be spread out across many years in a process called depreciation. Here, different parts of property – furniture, fixtures, land, etc – are depreciated at different rates.
An expert accountant, being acutely aware of how this setup works, thus leverages a key tool available to real estate investors – Cost Segregation Analysis. The crux of this strategy involves creating a detailed inventory of everything that encompasses the property. The items are separated out based on how quickly they lose value. The analysis allows accelerating depreciation on certain items, thus deducting more of the property’s cost from taxes quickly.
Why Does This Work?
The beauty of Cost Segregation Analysis rests in its ability to save a significant amount of money in taxation. The effect of savings in taxes is especially clear during the early years of owning property – when owners usually have high incomes.
But, there’s a catch. Tax laws are always updated to reflect the IRS’ current understanding of financial systems. Naturally, any deductions made based on Cost Segregation Analysis must comply with the latest tax rules. This is where the expertise of an accountant really matters.
A vigilant, responsible, and skilled accountant is acutely aware of the Cost Segregation process along with expected changes in tax laws. By developing an accurate deduction plan, you can enjoy tax benefits without worrying about an IRS Audit. Thus, real estate proves itself to be a very viable option but only when you work with skilled accountants!
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