Tax question - depreciation

General Real Estate Investing
1

I am a new investor and have income greater than 150k, so cannot take depreciation losses.

Does the property depreciate anyway? Do I fill out the tax forms showing the loss and carry it forward? How long can you carry it forward? What is the best way to take advantage of the tax situation?

I am planning to hold the property and rent it for a while.
Thanks in advance -

2

you can not get the tax break on any real estate rental loss; the deprec. is usually what causes you to show a loss.

there are two ways you can take those loss at a later date.

  1. you have a year lower than 150K; some or all of your loss can be taken in that year

  2. you sell the property.

I recently used #1 as I took a year off from the corp. rat-race to regain my health and sanity and did some consulting.

If I recall correctly, Sch E should send you to the right forms since at the bottom you have calculate whether your losses are suspended or not.

3

I know that this might be a day late and a dollar short, but don’t depreciate the home. Until your income drops below that magic number.

By depreciating the home, and not getting any credit for it, you’ve reduced the value, and may have to pay tax on the gains after it is sold, because your value will have been reduced by the depreciation amount over those years.

But always consult with a tax attorney or CPA for up to date advice. Or contact the IRS for the text book version.

Good Luck!

Kirk

4

kbrandau,

You need to get more familiar with the rules for depreciation recapture. The IRS will recapture all depreciation that was allowed or allowable. This means that the depreciation you should have taken will be recaptured even if you did not take it.

Suspended passive losses are not really lost, just suspended until they can be used. Failure to take an allowable depreciation expense because you can’t use the passive loss allowance is shooting yourself in the foot twice – once by creating a larger ordinary rental income than you would have had, and again by having the depreciation recaptured even though you bypassed any benefit from the depreciation.