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By disregarding IRS guidelines when determining depreciation schedules, over 90% of real estate investors are by mistake overpaying federal income taxes. They are paying federal income taxes earlier than required too, generally years or decades earlier than required. Despite the fact these guidelines are relatively of late, they grant considerable benefits. In view of the issue being fresh, several accountants have not yet applied the new IRS guidelines into their practice. Savings for real estate investors are important - more than $50,000 to $1,000,000 in the foremost year. With cost segregation, ordinary income taxed at 35% is altered into capital gains taxed at 15%. In addition, cost segregation postpones payment of income taxes, often 5 to 10 years.
A large number of real estate investors do not recognize the profits of raising real estate depreciation. They often challenge, "doesn't increasing my depreciation merely convert taxes at the moment in anticipation of the time I sell the property?"

This is a widespread misinterpretation and the answer is a totally "thumbs down". There are two benefits of increasing depreciation:

1. Changing ordinary income into capital gains income.

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2. Delaying income until a gain on the sale of a property is earned.

The transfer of ordinary income into capital gains income has to do with the procedural nature of the distribution of the gain on the sale. Many, if not the majority of accountants primarily believe it is basically a timing matter. On the other hand, when it comes to the mechanics of establishing gain on sale, accountants immediately appreciate that increasing depreciation results to paying taxes at the capital gains rate as compared to the ordinary income rate.

Correcting a depreciation schedule makes a difference if you recently sold a property since the additional depreciation will be taxed at the capital gains rate instead of the ordinary income rate. To illustrate, imagine an investor sold a property in late 2005, undertakes a cost segregation study, and escalated depreciation by $100,000. This will yield a net result for the ordinary income taxes to reduce by $35,000 ($100,000 x 35%) and the capital gains taxes to increase by $15,000 ($100,000 x 15%). This earns for the owner $20,000 in federal tax savings by means of simply correcting the error in the depreciation schedule after the property has been sold.

Upon recognizing it is plausible to increase depreciation and diminish federal taxes, most real estate investors ask, "doesn't my accountant look after this for me?"