Ive been depreciating my 2 rental properties for the last 2 years now using of course the 27.5 year method minus the land. This year (assuming no BIG unforseen expenses) Im not going to have much for write-offs other than my vehicle mileage and small maintenance expenses along with the normal interest, taxes, and insurance. After Tax, Interest and insurance i am profiting about $25 per month or $300 per year on the one unit. I am depreciating my carpets, appliances and some other things, but is it worth it to be depreciating the house itself? I think i am depreciating about $35,000 or roughly $1,250 per year. I have been showing around a $3,000 loss for the last 2 years on this property and should continue to show at least a small loss without depreciating the house. Is it worth it to continue depreciating this house for the small amount of money it gives me on my refund? Im not sure how long i am going to keep this property as it isnt really a cashflow property. If i keep depreciating this house, im worried that im going to get socked if i ever sell it. Thoughts. Heres some general info for the number crunchers.
Bought the house for $37,000
Remodeled $5,0000
Total Investment $42,000
Market Value $64,000
Loan Amount $52,000
Payment $428/month
Insurance $390/Year
Taxes $840/Year
Collected Rent $550/month or $6,600/year
I’m about 95% sure that the IRS will hit you with the 25% depreciation recapture even if you don’t take it.
So, yes keep taking it.
Why are you depreciating $35k? (almost the value you paid). You can not depreciate land and you should figure out the percentage of the purchase that is due to the building based upon the faction of the value improvements listed on the county/city tax bill. In other words, if the tax bill says $20k for the improvements and $10k for the land, you should be depreciating 0.667*purchase price. That’s the way I’ve always done it.
I bought the house for around $37,000 and put $5,000 for a total of $42,000. So whatever that ratio was, thats how i got the $35,000 after deducting the land. These numbers are just ballpark. But i will continue to depreciate the house as the other rental has a positive cash flow ove about $175 per month and will probably need some extra deductions to cover up that profit
Do you have other income, too? If you don’t depreciate, you are not taking full advantage of the oppotunity to offset up to $25K of your other income by using the net passive loss allowance.
You will still be required to report depreciation recapture income taxes whether you deduct depreciation or not, so you should always deduct depreciation.