How does a Cash-out Refi affect depreciation?

3 Replies

I have searched the forums but have not come across an answer to this situation...

I purchased a rental 1.5 yrs ago as a buy and hold property. I am now looking to do a cash-out refi after doing some improvements. With this refi we will of course be getting a new appraisal. Does the new loan or appraisal have any affect on the original basis I have been using for depreciation? If so does my basis change? Does my depreciation "clock" restart at 27.5 years? Is it some calculation of a basis based on the new appraisal vs the original basis minus the depreciation already claimed?

I know that I should probably contact a CPA come tax time, but just thought I ask the experts here to get a quick overview.

Has absolutely no effect.

@Wayne Brooks is right. Depreciation is based on useful life and is not impacted by changing financing.

Just to make sure you're covered on the statement "after doing some improvements", you should be depreciating any improvements that extend the useful life of the property. You can only expense things that don't meaningfully change the useful life of the property. If you have to ask what "meaningfully" means, it's probably time to talk to a CPA.

I'm an accountant, but I'm not YOUR accountant. This information is intended for general information and is not a replacement for the advice of a CPA familiar with the specifics of your situation. By using this information, you agree to limit my liability to what you paid for it (that's $0, btw). Have a nice day.

Thank you @Wayne Brooks and @Bryce Christensen , now that I think about it, it makes sense. I have been keeping track of the improvements vs. repairs and tracking their depreciation schedules. Those improvements are then the adjustments to the depreciable value of the house.

Thanks again for your responses.

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