If you own real estate as an investment, consider these tax-saving strategies
| The easing market may be worrying those who invested in real estate this year, but to avoid facing even more financial pain at tax time, those investors should consider the following year-end tax strategies. Keep in mind that real-estate investment tax tips are a bit different from standard investment tax tips, given that real estate is not as liquid as other investments. “There are some things you can do, but for the most part real estate works a little bit differently than some of the other areas where you normally do year-end tax planning [such as] selling some dog stocks from your portfolio,” said Eric Kea, a director of the real estate taxation practice at BDO Seidman. |  |
If you bought real estate this year, consider having an expert evaluate your property piece by piece in what’s called a cost-segregation or component-evaluation analysis. Each piece of your building is put into various categories, each with different depreciation timelines. If, instead, you depreciate your building and its contents as a whole, you’re forced to do that over 27-1/2 years for residential rental property and 39 years for a commercial property, Lechter said. By using a cost segregation analysis, you can “depreciate parts of the building over a much shorter lifespan. It greatly increases your depreciation deduction, therefore reducing your taxable income,” Lechter said. A professional cost-segregation analysis might be too expensive for a real-estate investor with just one small property. If that describes you, consider creating your own analysis based on your property-tax bill, said John Michel, a national real estate tax partner in the Cincinnati office of Grant Thornton, based in Chicago.
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