New or rehab duplex?

[Eric Haque]

Curious if everyone can help me with a theory i was told today by a few friends (real estate investors) regarding buying brand new duplex over an older one that needs little renovation. Is it true new construction duplexes depreciate once it’s bought rather than renovated appreciates?

[Will Fraser]

Hi @Eric Haque, welcome to the BiggerPockets Forums!  

I'm not sure I'm following the gist of your question, but let me take a stab at it.  There MAY be some differences in the way that depreciation works between building a new duplex and buying an existing duplex and renovating it.  Here's why, according to this amateur wanna-be accountant:

If you buy an existing property, you have:

• Land Cost
• Improvement Costs (the duplex itself, plus anything you do to it to improve it)

You can roughly understand it like this: your land cost is ignored.  Your improvement costs are depreciated over 27.5 years.  Some of these improvements would be eligible for accelerated depreciation, allowing you to write off some improvement costs in the year of the improvement, while others (perhaps the vast majority) would be strewn over the 27.5 years that follow.

Building a new duplex looks like this

• Land cost 
• Everything else.

Because you start with an empty lot (or a soon-to-be-empty one) the divide between what the value of the lot is and what the value of the improvements are is cleaner.  Add to this: much more of your improvement should fall on the "eligible for accelerated depreciation" side of the ledger, creating a nice tax break on the year of the improvement.  

That MAY be what your buddies were talking about.  Check with all the right people to make sure ^^ holds water.