INVEST Magazine NOVEMBER 2008 : Page 65
$8,000 of expense deductions, so it appears I should have claimed $4,000 in rental income and paid taxes on it. However, this rental property gave me a depreciation deduction of $6,000 ($165,000/27.5 years), which allowed me to claim a $2,000 rental loss that I could take against my regular income. At a 28 percent federal tax rate, the additional depreciation deduction was allowing me to pay $1,680 less in taxes (28% * $6,000 less income). Eventu- ally, I came to realize the benefit that depreciation was providing me: It was allowing me to owe less in taxes, even when I was making more profit. SEGMENTED DEPRECIATION Soon enough, I learned about sepa- rating my assets and segmenting my deductions, and it was saving me thousands of dollars more. People nor- mally depreciate their properties us- ing a straight-line deduction over 27.5 years. However, residential properties have shorter-life assets—like a refrig- erator or a fence—that can be sepa- rated and depreciated sooner, over five or fifteen years. I identify these assets and depreciate them separately so I can take the deductions sooner. With the accelerated, higher deductions, I can reduce my tax liability and save thousands of dollars. I identify these assets and depreciate them separately so I can take the deductions sooner. For example, using straight-line de- preciation on a $275,000 property can yield a $10,000 yearly depreciation de- duction, so $50,000 can be deducted INVEST Magazine November 2008 65
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