How to Write Off Expenditures to Reap Huge Tax Savings Print
Written by Al Aiello   
Friday, 26 February 2010 16:38

How Real Estate Investors Can Reap Huge Tax Savings


There are three major tax-saving benefits of classifying expenditures as repairs rather than capital improvements. One of them is immediate tax savings. For example, the owner of a rental property is in a 31% tax bracket and pays $20,000 as a repair is an immediate deduction which is worth $6,200 in tax savings. But if the $20,000 is capital "punishment" it must be written off over 27-1/2 years = an annual deduction of about $720 year = tax savings of only about $200 in the first year. A difference in immediate tax savings of $6,000! These tax savings could be used as an immediate source of down payment monies for other income-producing real estate.

There are over 60 tax saving ideas to convert capital improvements into fully deductible repairs! Let me share some of them with you.

COMPONENTIZE IMPROVEMENTS

Just as a big forest is made of many smaller separate trees, so is an extensive plan of improvements made up of a series of smaller, separate repairs. That is, much work resulting in the "permanent improvement" to a property, in essence, consists of a series of "separate repairs". Such repairs could be immediately deductible if documented separately. Otherwise they will lose their nature as repairs if they are part of a general plan of improvement or reconditioning.

You therefore need to componentize or fractionalize the large expenditures into a larger number of smaller, separate jobs. It helps if each job is done separately & independently, over more than one year. Do this with separate invoices and separate contracts for each job. This is what the tax court said in Cobleigh, TC Memo, 1956-261.

DOCUMENTS (SUCH AS BILLS & CONTRACTS) SHOULD BE WORDED AS "REPAIRS"

Use such words as: "repairs", "prevent damage", "patch", "temporary", "incidental", "minor", "fix", "piecemeal", "annual", "less than a year", "decorating", "painting", "small", etc. Also, the prefix "re" is effective. For example, "repaint", "repatch", "repaper", "recoat", "resurface", "redo", etc. These have been in the taxpayer's favor in deciding that expenditures were repairs.

Do the above and put more tax dollars in your pocket!

The above are excerpts from The Real Estate Investor's Goldmine of Brilliant Tax Strategies, by Albert Aiello. The specially designed forms on disk enable RE entrepreneurs to document, with tax law citations, large write-offs of repairs and reap huge tax savings.