With life, there are only 2 things guaranteed: Death and Taxes.  In real estate, I’m not sure how to relate it with death, but certainly taxes are guaranteed.  Whether you are paying property taxes to the city, county, etc, or are paying income taxes from the passive income it produces for you.

I have looked into several portfolios with our lenders and have considered SW Florida to have the better deals right now when it comes to overall cash flow performance and market conditions.  I just bought personally and sold a few duplexes (2 family homes) in Lee County (Ft. Myers area).  I focused on 2004 or newer builds, brought them back to brand new condition and rented them out.  Overall, I was into each duplex at about $75,000.  If you saw the duplexes you would think they were a steal.  All concrete construction, 3 bed 2 bath with 1 car garage on each side totalling over 2800 square feet.  I rented each side for $700 a month and making $890 per month positive cash flow AFTER paying my tax/insurance escrows.

Assuming my cash flow is about $10,000 a year on a duplex, I will have $40,000 in cash flow annually if I achieve my goal to purchase 4 this year.  The IRS will plan to take over 40% of that.  Here’s how you offset:  Consider you will have to pay $20,000 in federal/state income taxes.  Taking into consideration a small/medium sized Florida portfolio of property that you own, consider buying something in Louisianna along the coast, in what is called the “Go Zone” region. 

Remember Hurricane Katrina?  Well congressional / IRS incentives are still in place for real estate investors who invest in rental property can take a MASSIVE income tax incentive in exchange for helping to restore the housing stock.  The Go Zone allows you to accelerate the depreciation on your rental property in designated areas.  After ony the first year of ownership, you are allowed to take a BONUS depreciation of 50% in addition to normal rates of depreciation.  This “depreciation” is a tax deduction and the bonus 50% gives you a MASSIVE income tax deduction.

Assuming you purchase a home in Louisianna for $130,000:  The IRS will only allow you to depreciate the value of the “structure”.  Lets say the land is 10% of your price so your structure value now stands at $117,000.  After your first year of ownership, you will be allowed to take a tax deduction or “bonus depreciation” in the amount of $58,500 which is half of $117,000.  Here is the best part.  In the meantime, this Louisianna property is already rented out giving you cash flow as well. 

So let’s take your $58,500 bonus depreciation.  Assuming you are in the 35% tax bracket, the $58,500 essentially saves you $21,060 IN YOUR POCKET.  (I achieved $21,060 by multiplying $58,500 by 36% tax bracket). 

Let’s go back to your Florida properties.  Remember how I mentioned that assuming you have 4 properties and $40,000 of rental income annually?  Remember how I said that the IRS will likely command about 40% of that?  If so, the IRS will require you to pay about $16,000.  HOWEVER, being that you are invested as well in Louisianna or The Go Zone, your CPA will be able to amend your taxes for the IRS and completely eliminate you from tax liability from your positive cash flow.

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