Calculating Tax Depreciation

[Ray Taylor]

So I have tons of questions about how depreciation is actually calculated, but I will start small... Many references say you calculate the yearly depreciation in the value of the building(not land) at purchase and divide by 27.5 years. My question is what if you refinance to take cash out. Do you take the new loan amount and figure building cost to figure out what you depreciate or are you stuck with the old value?

If anyone knows of a book or any other resource that gets into this depth of taxes I would like to know or the resource. I currently do not have a CPA as I only own one rental property I just want to have a working knowledge of the area to make better-informed decisions on future sales of properties.

Thank everyone for their time and support!

Ray

[Brandon Hall]

No you cannot depreciate the appraised value via a cash out refinance. You only depreciate assets based on their value when you place them into service. When you refinance a property, it's already in service, thus no adjustment to depreciation.

Special rules apply to primary residences converted to rentals.

You should understand how refinancing a property will limit your ability to write off the interest. That's a huge pitfall we see many clients fall into.