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During a routine discussion, you learned from your accountant that any income earned from investments outside your retirement accounts would be taxed at 37%, barring any significant financial changes. A portion of the taxes owed for the annual income generated from this property can be deferred through the depreciation of the improvements. The points paid to the lender to secure your loan can also be amortized and deducted from your income. It is also important to remember that mortgage interest is also tax deductible. Your accountant explained that when you sell the property at the end of the five-year holding period, you should budget for a depreciation recapture tax rate of 25% and that any capital gains earned from the sale of the property will be taxed at 20%. A quick review of the public records revealed that the building is currently assessed for $300,000, of which the city allocated $255,000 to the improvements. The remainder is allocated to the underlying land