Beaverton, OR · Member since 2017 · 37 posts · 21 votes
Let's say you buy a property for STR in 2024 and take accelerated cost seg benefit. Then you sell it in X years (3,5,7,10). Do you have to return the savings back to IRS if you sell it before 30 years?
Let's say you buy a property for STR in 2024 and take accelerated cost seg benefit. Then you sell it in X years (3,5,7,10). Do you have to return the savings back to IRS if you sell it before 30 years?
Short answer - yes.
Long answer: you always have to return ALL kinds of depreciation when you sell. Regular depreciation, accelerated depreciation, bonus depreciation, all of them. The more you take, the more you have to return. Depreciation is a loan, not a freebie.
It also does not matter how soon you sell. In 3 years or in 30 years, the same result. Except that in 30 years, you will have accumulated more depreciation to return.
There are strategies like 1031 exchanges that can be applied whet it is time to sell. These strategies kick the can down the road by delaying capital gain taxes. And those taxes get completely erased when you die if you hold properties until that time.
@Amit Shukla Great question. What you are referring to is known as depreciation recapture. There are ways to continue to defer the taxes such as a 1031 exchange like Michael mentioned. With bonus depreciation, you are accelerating the depreciation to have more cash in hand today to be able to compound the growth of your portfolio. Here's an article that walks through whether recapture diminishes the value of a cost segregation study.