If you hold your personal property for more than two years, you avoid paying capital gains tax. After those two years, you decide to rent the property out and generate income from it. You hold on to the property for another 5 years and claim your allowed depreciation deduction each year. Your allowed deductions each year are 8,000, but your rental income is only 3,000.

  1. Can you take the excess depreciation and use it against ordinary income outside of the property?

  2. When you decide to sell, can you still do a tax deferred exchange even though the property was initially your primary residence?

  3. If you just sell and pocket the capital gain, how does depreciation recapture come into play?

  4. Are you still taxed at the 25 % rate for the amount you depreciated even though you held the property for more than two years as a personal residence, thus avoiding capital gains taxes?

I know this is a lot of information, so any help will be greatly appreciated.


You should put this post in the “Asset Protection, Legal and Contract Issues, Income Taxes, 1031 Exchanges” section of the forum…that’s where the income tax folks hang out…you’d probably get a better/faster answer there.


thanks for the tip keith. i will try that.