depreciated rental property ? I only depreciated things like deck, and appliances, what is this 27.5 yr deduct

Question

am i required to deduct this ? rented out for 5 yrs now and never claimed this. I have read that when i sell I have to pay capitol gains on this.

Answer 1

You are allowed to depreciate the cost of the improvements to the land. This includes the cost allocated to the building. The portion of the purchase price allocated to the land is never depreciated.
The depreciation is taken each year as an ordinary expense against rental income. The ideal rental will result in a loss to the extent of the depreciation taken and of of your out of pocket cash costs would be covered by the rent receipts.
If you have not taken depreciation on the building I would recommend that you amend your prior year return to claim this expense. You would need to amend 2003 by April 15, 2007 because there is a three year window for filing an amended return and the 2003 year runs out of timw this April.

Answer 2

Although you are not required to take the depreciation expense, you'd be a fool not to. You get the write-off for the depreciation expense now which will normally lower your tax bill.

Depreciation on rental property is calculated on a straight-line basis over 27.5 years. You cannot depreciate the land so you need to split out the land and improvements separately before you calculate the allowable amount.

When you sell, any depreciation allowed OR ALLOWABLE must be deducted from your basis in determining the gain on sale. That "OR ALLOWABLE" is the one that will get you at sale time -- even if you didn't take the expense for depreciation, you still have to reduce your basis by the amount that you could have claimed even if you didn't claim it.

You should file amended returns for the last 3 years and take the depreciation expense item and get your refunds due you. The other 2 years are lost forever now but at least you can salvage the 3 most recent years if you act by April 17th.