Plan to rent out for a few years and then convert to personal property-Main home. For years in rental do I have to take depreciation expense or not? Would prefer not to, so when converting, basis is intact.
2007-04-08 03:55:37 · 7 answers · asked by Bobblehead 1 in Business & Finance ➔ Taxes ➔ United States
The link below is an IRS FAQ that addresses your question. You are required to adjust your basis for 'allowable' depreciation regardless of whether the deduction is taken. You can claim depreciation not taken for rental property in the years before the sale. That requires extra paperwork and I doubt there is a net benefit over claiming it as you go.
2007-04-08 07:07:31 · answer #1 · answered by STEVEN F 7 · 1⤊ 0⤋
The IRS will not require you to take the depreciation deduction on your rental real estate. However, when you sell the property, even if it has been used as your main home and is eligible for the exclusion on the gain, you must figure all depreciation allowed or allowable, and you will pay tax on that recaptured depreciation, whether you deducted it or not. In other words, your gain up to the amount of depreciation allowable is not exempt from tax.
So you may as well exclude the depreciation from your income now, since you will be taxed on it later.
2007-04-08 11:33:16 · answer #2 · answered by ninasgramma 7 · 4⤊ 0⤋
Why don't we all change the IRS regulation that assumes you took the depreciation? It seems like a shell game by the government that is SUPPOSED to be by and for the people! This doublespeak is heinous.
2014-10-21 14:00:05 · answer #3 · answered by Heulende Kuh 1 · 0⤊ 0⤋
You don't HAVE to take it. If you take it today and plan to convert you are essentially betting on your ordinary income tax rate when you convert since you will (I think) have to recapture the depreciation. So if a deduction you take today shields income at say a 28% incremental tax rate gets recaptured at the same rate, you get the benefit of the time value of money and taking depreciation benefits you. Assuming that your incremental rate when you recapture goes up, you lose assuming the time value benefit does not offset the additional tax. If you expect your tax rate to be lower when your convert (retirement causing decrease in income and lower tax rate), definitely take the depreciation deduction. Bottom line it is a judgment call based on your personal facts and circumstances.
2007-04-08 11:22:28 · answer #4 · answered by Anonymous · 0⤊ 3⤋
When you sell the property, the wording in the law is that you must recapture all depreciation "allowed or allowable". I don't suppose you have to take it, but by the law you have to recapture it whether you took it or not.
2007-04-08 11:09:18 · answer #5 · answered by irongrama 6 · 4⤊ 0⤋
Based on my reading, yes you do have to take it. Later when you sell, IRS will ASSUME you have taken it and force you to recapture it anyway.
2007-04-08 11:04:59 · answer #6 · answered by Single4Good 2 · 1⤊ 1⤋
You may, if you want to. But you do not have to.
It is a deduction. I don't see why you do not want it.
You know, you have to report the rent as your income for sure.
2007-04-08 11:04:20 · answer #7 · answered by kenneth h 6 · 1⤊ 2⤋