Is Tax Math Fair? And does anyone actually understand it?

Tax, SDIRAs & Cost Segregation
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Is Tax Math Fair? And does anyone actually understand it?

Cameron Price
Real Estate Broker · Hartsville, SC · Member since 2015 · 174 posts · 69 votes

I just filed my taxes for 2018, and had to pay in a significant amount of money. This got me exploring some of the details of my situation and  trying to figure out some of the math and the logic for certain things. I do have a CPA who helps me, but I'm a a Real Estate Broker and Investor with a background in Engineering, so I'm constantly trying to learn as much as possible and grasp everything I can with a solid understanding. 

My question is for those who have a DEEP understanding of the tax code.  I see all these seemingly arbitrary numbers and limitations and exceptions, and I wonder where they come from. I know that's way too deep of a topic to answer quickly, but If you really understand what they are trying to accomplish, do you think it's fair overall? Or do you think most of these rules are made to benefit a particular group that lobbied well? Things like deprecation deductions only being able to offset ordinary income up to a certain limit, unless you are actively engaged in real estate (something along those lines), Or biodiesel credits, but only if you do this, but not that.  Don't get hung up in the specific examples, because I'm ignorant when it comes to the tax code (that's why I pay my CPA) but I'm genuinely curious if people actually understands these things, or they just know the rules and follow. 

It's like there's a huge system of "if this, then that"  someone somewhere had to program into Excel and someone had to understand the logic completely to program it (write the tax code). I'm sure it has been many people over time, but you get the analogy. I wonder if some of you on here feel you have a good grasp on the logic, and if you do, do you think it's fair overall? Do you understand the caps and the exceptions? I know that's a loaded question, but i think it would be a worthwhile discussion.

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Nicholas AiolaBusiness Member
CPA & Investor · New York, NY · Member since 2017 · 1k+ posts · 1k+ votes
7y

@Cameron Price As you mentioned, it's definitely too deep of a topic to condense the intent and decisions behind writing ~80k pages of the tax code but, to put it very simply...

Tax dollars are one thing - the money the government collects from income taxes is used for Social Security, Medicare, national defense, transportation, eduction, and so on and so forth. A quick Google search will give more detail on that.

But as for the Code itself - in a broad sense, the tax code is designed to incentivize you to put their money where the goverment wants you to put it. We've all heard that manipulating (legally, of course) the tax code is how the rich stay rich. How? By following the "instructions" of the tax code. For example...

  • Real estate is a tax-advantaged investment in several facets (depreciation, capital gains, 1031 exchanges, opportunity zones, the list goes on and on). Why? The goverment wants people to provide housing to others.
  • Corporate tax rates were slashed and pass-through deductions were implemented in the TCJA to promote entrepreneurship and start ups.
  • Energy-efficient tax credits exist to encourage people to go green and purchase environment-friendly goods and products.
  • I don't need to explain why there is an abundance of oil and gas tax credits and deductions.

Where you see a tax credit or deduction, a trained eye sees an opportunity.

If you (or someone you hire) knows the tax code, how to read it, and how to apply it, you are able to structure your investments, businesses, and financial moves in a tax-efficient manner.

So, I guess, to answer your question - in my opinion, the tax code is fair but only if you know how to navigate it.

Again, this is an overly simplistic summarization. I'm sure others will have more info and opinions to add.

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  • Tom Makinen
    Member since 2019 · 226 posts · 115 votes
    7y

    @Cameron Price  Once you get to a certain income level, I strongly suggest you hire a tax strategist.  With yourself being self employed, there are plenty of loop holes you can go through to save yourself money.  W2 monkeys like me, the only thing we have is 401K, mortgage interest and the SALT deduction.  SALT was limited, so that's basically useless to anyone in high tax states.  There is a cap on how expensive of a house you can purchase before the interest deduction phases out, so good bye to all the nice metro areas.

    As far as who makes it and why they make it, it's mostly political and how much special interest and rich people line the pockets of politicians.  Do you really think the old geezers in DC knows what the difference between the tax bracket rate and the effective tax rate.  Progressive tax vs regressive tax.  What's in Sch A vs Sch B, C, D or E.  They are mostly lawyers and liars, I think there are only a handful of accountants in DC.  

    Bottom line is that America loves business and they hate the working folks.  You might want to think about incorporating and become an employee to your own corp, it might end up working out better for you from a tax perspective.

    2Reply
  • Matt Heider
    Accountant · Lubbock, TX · Member since 2018 · 5 posts · 2 votes
    7y

    @Cameron Price I think the thread has covered some of the complex issues that you're looking at (recapture, etc).  I would say as a CPA, I try to make sure that I explain to my clients why their tax situation "is what it is".  If your current CPA/preparer doesn't sit down and go over the concepts specific to your situation, it's time to find a new one.

    Many people think we should move to a flat tax.  However, flat taxes aren't exactly fair.  As an example, say we have a 10% flat tax in the US.  Let's say we have two families, A&B, who make $50,000 per year and $500,000 per year.  I guarantee that $5,000 is worth a WHOLE lot more to A family than $50,000 is worth to B family because A uses most of its income to survive, while B uses a smaller portion of its income to survive.

    1Reply
  • Cameron Price
    OP
    Real Estate Broker · Hartsville, SC · Member since 2015 · 174 posts · 69 votes
    7y
    Originally posted by @Irina Belkofer:

    @Cameron Price I personally don’t understand why it’s confusing.

    If you play cards or chess, are rules confusing to you or you just learn the rules and try to win?

    Nobody feels good about paying taxes, that’s the reason why people learn the rules and avoid paying taxes LEGALLY whenever it’s possible. Maybe my background as an accountant or just because I do understand financial systems better than something not so logical - I don’t have problems with comprehending it.

    As a real estate investor and business owner you have huge amount of advantages vs people working on W-2.

    You deduct almost everything on your sch.C, you don’t pay social taxes on your sch.E, you can defer capital gain taxes through 1031 exchange. That’s one hell of a deal to create business which pay much less taxes than people working 40 hours per week and couldn’t deduct even driving to work....lol

    I’m from Russia where income tax is 13% flar rate and people still don’t like paying it.

    There is no such great system like here - all these deductions, exemptions.......I don’t even pay state income tax in my state because small businesses are exempt. What not to like?

    You just have to learn the rules and then create your own tax empire to avoid unnecessary taxes. Legally.

    I do have a very specific learning style that does not fair well with "here are the rules, now follow them".  I have a very hard time with that. I need basics to build from and the rules can't be the basics.

    As far as games, the analogy makes me think, but doesn't hold up in practice. If I'm playing poker, I understand that 3 of a kind is better than a pair, because it's a lot more likely to get 2 cards that match than 3. You're playing odds, in a sense. There are also a very limited set of rules. I can grasp them all in a short amount of time, so even if I don't understand all the logic, I can grasp the game as a whole pretty easily. Understanding something really complicated like tax law is tough to get started without knowing how to begin.

    Feeling good about paying taxes... I guess nobody really feels good about it, but when I buy a drink for $1 at the drive through and my total is $1.10, I have no qualm. I understand that there is an 8% sales tax and an 2% Hospitality Tax. I fully expect 10% to be added to my purchase at the drive through. I didn't feel good about it, but I wasn't confused and upset either. If they told me it $2.23 because they applied some complicated algorithm to it, I would be asking questions and trying to figure out why my tea costs so much.  So that's what I'm working on. If I understand this stuff and expect it, it's like the 10% at the drive through. I'm ok with it. 

    1Reply
  • Sylvia B.
    Rental Property Investor · Douglas County, MO · Member since 2014 · 1k+ posts · 1k+ votes
    7y

    @Cameron Price

    Why would you expect the tax laws to be fair?

    0Reply
  • Cameron Price
    OP
    Real Estate Broker · Hartsville, SC · Member since 2015 · 174 posts · 69 votes
    7y
    Originally posted by @Russell Brazil:

    Lobbyist lobby for a tax break for X. Could be any tax break for anything.  Then that gets sent to the Congressional Budget Office who does an analysis that Y Dollars will be lost or gained. Then whoever wrote that law realizes that dollar amount is just too large, so then they end up putting a limitation on the deduction, or a phase out or the such.  That is where pretty much all the limitation end up coming from, an arbitrary number to limit losses on government revenue after a CBO study of proposed legislation.

    That makes a lot of sense! Thanks for the great info. So those numbers really are arbitrary!? kind of... more like a loss limiter for Uncle Sam.

    1Reply
  • Tom Makinen
    Member since 2019 · 226 posts · 115 votes
    7y

    @Cameron Price  That's why they have CPAs to figure it out for you if you don't understand it. 

    0Reply
  • Joseph ODonovanPro Member
    Property Manager · Ridley, PA · Member since 2017 · 427 posts · 449 votes
    7y

    @Cameron Price Advil please

    0Reply
  • Account Closed
    Investor · Milwaukee, WI · Member since 2013 · 1k+ posts · 1k+ votes
    7y

    LOL

    No, it is not fair. Our money is taken, our money is devalued on purpose, our money is wasted, our money is spent in advance before it is even collected. The best part is, the money goes to people on the "inside" meaning contracts get awarded with politics, not competence and value. Great stuff. Wars have been fought for less. O, that's right, we started a war with Britain over the same thing in the 1700's.

    We are currently something to the tune of 23 trillion dollars in federal debt. That is the amount that has been spent on our behalf, on our credit card if you will, that we still have to pay. See if your calculator on your desk can figure how much that comes out to per person. Now consider only 50% of the population actually pay income taxes. Whoops, not enough characters on the calculator are there?

    If you add up all the taxes, federal, state, local, we end up paying like 50% of our money in taxes. By simple math terms, you could conclude we are 50% communist.

    The tax code is not the instructions and publications the IRS publishes and we all have become familiar with. It is it's own document, and is something like 75000 pages long. There are lawyers who do nothing but study and argue the tax code for their clients. I say burn it and start over.

    But no, now they have it all programmed and it is so hard to understand, we have but little choice but to allow a computer do do it for us. So what was hard is now easy, and we shall hibernate in apathy for another spell yet again.

    Of course tax math is fair. Math is always fair. Legal writing on the other hand is an entirely different thing, especially when the dictionary is outdated the day it goes to print.

    Happy 4th of July.

    2Reply
  • David Stumpf
    Rental Property Investor · Baltimore, MD · Member since 2017 · 142 posts · 125 votes
    7y

    This is what i gathered thus far

    1. To take advantage of taxes you need to understand the tax code or hire someone who is.

    2. With 80k pages of tax code that takes a career in finance to understand.

    3. Being able to take advantage of the tax code makes it fair? Maybe but why did it need to be so complicated

    My solution: A bonfire! Burn all 80k pages and start over. Rewrite the tax code. 1 page, front and back, 10pt font, double spaced. The is no need for phrases like if a then b except for c unless you make more then x, have less then 3 dependents and ate red meat on Thursday. But this is why I have a CPA to help me through so I can't complain (too much)

    1Reply
  • Llewelyn A.
    Investor / Broker · Brooklyn, NY · Member since 2016 · 665 posts · 1k+ votes
    7y

    @Cameron Price

    I happen to agree a lot with @Irina Belkofer that if it's really about getting a good understanding of the rules, how they are played and even WHY it's there in the first place?

    I asked that question to myself plenty of times.

    So I started to really try to get a good handle and after a while, it really started to make a lot of sense.

    I actually started with Investing in Stocks. To do that, I really wanted to understand all the financial statements, Income or P&L, Balance Sheet and the Cash Flow statements.

    That lead me to further try to understand what the heck is Depreciation and why is it there?

    Well, I tried to first imagine what would a company report if there was no such thing as depreciation so that everything was an expense.

    This is what it will look like for a brand new limo company:

    Year 1: purchased Limo for $50k, income generated $10k

    Year 2: income generated $10k

    Year 3: income generated $10k

    Year 4: income generated $10k

    Year 5: income generated $10k, sold the Limo for $2k

    So, without depreciation using a simple layman's analysis without depreciation, it looks like this:

    Chart 1

    --------

    Year 1: Loss of $40k ($10k income minus $50k capital expense)

    Year 2: income of $10k

    Year 3: income of $10k

    Year 4: income of $10k

    Year 5: income of $8k

    Well....... that may be the income.... but is it really? It really looks all over the place.

    BUT... let's say you used the IRS depreciation schedule to depreciate the asset in 5 years so that's a $10k expense for depreciation over the 5 years.

    So now it looks like this:

    Chart 2

    ---------

    Year 1: Break Even ($10k income minus $10k depreciation Expense)

    Year 2: Break Even ($10k income minus $10k depreciation Expense)

    Year 3: Break Even ($10k income minus $10k depreciation Expense)

    Year 4: Break Even ($10k income minus $10k depreciation Expense)

    Year 5: Loss of $2k ($8k income minus $10k depreciation Expense)

    So, if you look at the Non-Depreciation list of Income and the depreciated list of Income, which one actually makes more sense?

    To me, the 2nd chart which tells me the business is making ZERO income over the 5 years seems more right than the first chart.

    Just think of Year 2 to year 4.

    In Chart 1, you would think this is a healthy business with $10k income for those 3 years.

    BUT, in Chart 2, it tells you that the business actually made ZERO INCOME!

    Which one is more accurate?!

    I, for one, pretty much accepted the accounting rules and see the logic in it. It really helps me to understand the health of a business. Or at least I believe I do! haha! It's complicated but I believe in thinking things out first as if it didn't have the tax rule and then see if it makes better sense with it.

    Recaptured depreciation will make sense once you realized that if you take more depreciation than you were suppose to, and you won't know that until you sell the asset, you will need to pay it back. That rule makes sense as well once you get into it. But that will be for another discussion!

    1Reply
  • Jill F.
    Investor · Akron, OH · Member since 2016 · 2k+ posts · 4k+ votes
    7y

    Hahahaha, not me. Our real estate biz return was over 100 pages, the accountant tells us to review it but honestly I just sign where she puts the little arrow flag stickies. We have another biz with a long return plus a long personal return and I gave them both the same careful attention...at the little arrow flags. Accounting was the only 'D' I got in college. I swear I'd rather sand drywall.

    1Reply
  • Jesse Swagerty
    Flipper/Rehabber · Houston, TX · Member since 2019 · 15 posts · 11 votes
    7y

    @Cameron Price

    I highly recommend reading “Tax Free Wealth” by Tom Wheelright. It’s literally my favorite book. I’m not a CPA. But I am a nerd who enjoys doing my taxes every year. Won’t say I “understand” it...but I get it.

    I also am an engineer and RE Investor. For me, the main thing to understand is that we live in a democratic republic, where differing opinions of what is “right” or “fair” to either the individual or society as a whole are topics of constant debate....and always will be. Thus we arrive at our ever changing tax code. It will never be truly “fair” to everyone because we all have different perceptions of fairness.

    As an investor, the key point to understand is that the IRS only has about 6 pages describing what taxes have to be paid, but VOLUMES of literature for deductions that can be taken depending on how your dollars are spent. The purpose of this is to incentivize the general public to use their money certain ways intended to boost the economy, create jobs, save lives, feed the public, etc, etc. The better you understand this, the more “fair” the tax code will be, because you’ll understand how to better navigate it and maximize what you can keep.

    4Reply
  • Craig Jeppesen
    Rental Property Investor · Chubbuck, ID · Member since 2018 · 532 posts · 466 votes
    7y
    Originally posted by @Cameron Price:
    Originally posted by @Craig Jeppesen:

    The simple answer is taxes are different for everyone, they are not fair for everyone, and they are super complex and get worse every year due to politics and politicians agendas, etc etc etc. 

    You will not get the answer you are looking for.

    Thanks for the response. I think that is part of the answer I'm looking for.  So, if this thing is 80K pages, politically influenced, super complex, and nobody fully understands what's going on anymore, how do people even make decisions? Do politicians, economist, lobbyist, etc just focus on a specific piece they want to change and forget how it impacts it as a whole?

     No they just focus on what they think will get the most votes and money and what bits and pieces they need to change to a bill to ensure that they get enough votes for the bill to pass. Politics at its finest.

    3Reply
  • Jim K.
    Handyman · Pittsburgh, PA · Member since 2018 · 5k+ posts · 13k+ votes
    7y

    I've tried to say this before, last time I got called a racist, but maybe it will make more sense here.

    The tax code is not fair. It's not even CLOSE to fair. A blind man could see that. Even a blind monkey could see that.

    The tax code deeply privileges people with money and flexibility, money to hire accountants and tax strategists, and flexibility to structure their lives.

    "Blind monkey" isn't just a figure of speech. Rhesus monkeys have a demonstrable sense of fairness and justice. There's actually been research done on it. So it's no surprise that we would want things to be fair. That we would want social justice on a very basic, personal level.

    But in this world, with everything I've seen, questions of right and wrong only actually matter when the two parties who are debating them are of equal power. Other than that, the strong do what they want and the weak suffer what they must.

    The only reason I am in this real estate deal is not to get rich and spend lots of money on toys. I used to be a teacher. Once, I wanted to be a priest. I decided a long time ago that lots and lots of luxury material possessions would never make me happy. I am in this because in this capitalist society, MONEY IS POWER, and money, for someone like me, is a lot easier to get than almost all of the other forms of power.

    Power is the only thing that keeps you from being abused by the strong in this world. Power gives you choices. And that's assuming you have enough of it.

    6Reply
  • Jill F.
    Investor · Akron, OH · Member since 2016 · 2k+ posts · 4k+ votes
    7y

    @Jim K. Truth. Wish I could vote that post up twice.

    1Reply
  • Tom Makinen
    Member since 2019 · 226 posts · 115 votes
    7y

    @Account Closed  You can always be a corporation and pay after expenses and on your profit only at 21% flat.

    The accounting and tax reporting is easy if you know basic accounting, the tough part is finding all the loop holes you can explore (it's legal).  This is especially easy for people who are self employed or don't get paid by W2.  For people with enough money, there are plenty of loop holes they can use to take advantage. 

    0Reply
  • Pat L.
    Rental Property Investor · Upstate, NY · Member since 2012 · 3k+ posts · 3k+ votes
    7y

    We have always approached the Tax Law with the same enthusiasm as a buy or rehab. Detailed knowledge is what margins are all about. I've lived through several audits & learned a lot. The best comment the last IRS auditor said was 'why are you doing this, how do you make any money'.

    We do take advanced Tax courses each year & it's enjoyable & thought provoking & plays off.

    2Reply
  • Eamonn McElroy
    Accountant · Atlanta, GA · Member since 2015 · 1k+ posts · 1k+ votes
    7y

    @Tom Makinen

    "You can always be a corporation and pay after expenses and on your profit only at 21% flat."

    My practice has found that for operating businesses, an S Corp always beats a C Corp from an effective tax rate perspective -- every single time.  This is true even under the TCJA, with the reduced C Corp tax rate and assuming the business is a "Specified Service Trade or Business" the owner is phased out of the 20% QBID (i.e. the worst case scenario for an S Corp under the TCJA).

    I find C Corps only make sense in very limited fact and goal patterns (e.g. foreign ownership, when a company is anticipating going public, and/or when owners want heavy fringe benefits).

    Don't forget you get taxed when you extract capital from a C Corp -- either via salary or dividends.  You can't just consider the 21% C Corp rate alone...

    If it's rental real estate, generally it's not a good idea to hold that inside of any corporate tax entity -- S or C.

    2Reply
  • Pat L.
    Rental Property Investor · Upstate, NY · Member since 2012 · 3k+ posts · 3k+ votes
    7y

    My Summer by the pool light reading...

    1Reply
  • Eamonn McElroy
    Accountant · Atlanta, GA · Member since 2015 · 1k+ posts · 1k+ votes
    7y

    @Pat L.

    Make sure you wear sunscreen if you plan on falling asleep by the pool.  ; )

    0Reply
  • Pat L.
    Rental Property Investor · Upstate, NY · Member since 2012 · 3k+ posts · 3k+ votes
    7y

    lots of shade...

    0Reply
  • Cameron Price
    OP
    Real Estate Broker · Hartsville, SC · Member since 2015 · 174 posts · 69 votes
    7y

    Thank you all for the replies so far! It's interesting to see everyone's perspective on taxes. I didn't realize until reading all these comments that my question was really a couple different parts.

    The part that most people are hearing is "Are Taxes Fair?" which is a great question, and I love the conversation. That wasn't 100% my intention in the question, but it's still a great discussion. 

    The other part is "Is the Math Fair?" which is slightly different, and I know there's a lot of crossover. Or maybe, a better way to ask is "Are basic accounting principles fair?" I'm not sure if you can answer this without including the previous question in the mix. But since I mentioned depreciation, and that's one that I have a real hard time with, lets use it as an example. 

    Several years ago, I paid 25K cash for a property. I rented it for $700/month.  If I remember correctly, I had to depreciate the property over 27.5 years.... I Paid for it all in year 1. I couldn't understand why I couldn't count 25K as an expense. I had to pay taxes on $8,000 or so of income and got a whopping $900 depreciation deduction for an investment that that pulled 25K our of my pocket immediately. Then when I sold it, I had to pay depreciation recapture! I felt all kind of shorted somehow! Probably just my ignorance, that's why I'm digging into this stuff now.

    That example is basic accounting, right? Not politically charged lobbying or special interest stuff. My original intent of this thread was to ask about this kind of stuff (I think). 

    For those of you with solid grasps on accounting, does that example sound right to you? Does that feel fair? Is it my ignorance on the concept that makes that feel lop sided or was it my specific situation that really did skew the cost to benefit comparison? That's more what I wanted to focus on, if that makes sense.

    0Reply
  • Steve L.
    Fairfield, CA · Member since 2016 · 29 posts · 22 votes
    7y

    IMHO, math is always fair.  Human beings at times not.  No matter how someone is raised or where they come from math stays the same.  iIn general, so many people listen to math equations from the TV  rather than a calculator.  They get tax advice from the TV instead of a tax pro.  Imagine if a person created money velocity by reinvested the tax savings each year back into their real estate business instead of cashing out ?  How a person chooses to invest is on them, but the unwritten rule of any game is make sure to read the rule book as best you can. 

    0Reply
  • Irina Belkofer
    Real Estate Broker · Cleveland, OH · Member since 2017 · 719 posts · 658 votes
    7y
    Originally posted by @Cameron Price:

    But since I mentioned depreciation, and that's one that I have a real hard time with, lets use it as an example. 

    Several years ago, I paid 25K cash for a property. I rented it for $700/month.  If I remember correctly, I had to depreciate the property over 27.5 years.... I Paid for it all in year 1. I couldn't understand why I couldn't count 25K as an expense. I had to pay taxes on $8,000 or so of income and got a whopping $900 depreciation deduction for an investment that that pulled 25K our of my pocket immediately. Then when I sold it, I had to pay depreciation recapture! I felt all kind of shorted somehow!

     Let’s compare investment of $25K in real estate and in stocks, which don’t have depreciation.

    1. You bought a house for $25K and kept it, let’s say, 7 years. Your gross rents were $8400/year but depreciation $909/year, which made taxable income $7491/year.

    2. You bought stocks for $25K with the same return $8400/year but no depreciation.

    It's 33.6% ROI....good job :))

    Now, every year you have to pay taxes, let’s say 30% on your income. So, the depreciation for these 7 years was $6363 - that’s your income, you don’t have to pay taxes on. Every year, you reinvest $272.70 with the same 33.6% which gives you $641 in 7 years. Also, the difference itself will be $1909 during these years vs investment in stocks.

    So, the depreciation = $6363 for these years but recapture on only $1510, 25%, added to your taxable income - tax will be only 30% of that amount....

    But you’ve got extra $641+$1909=$2550 in extra income because of reinvestment of extra money tax free because of depreciation.

    When you paid for the stocks $25K you don’t want to count it as expense and deduct it from your taxes, right: it’s your base, not expense.

    When you bought a house, the depreciation it’s a bonus to make it more beneficial in comparison with other forms of investments. 

    Besides, 33.6% ROI on a house purchased 7 years ago is not unheard things. We're there any mutual funds or other portfolios letting you make 33.6% every year?!? Which is not the subject of depreciation recapture, of course....still relevant to the discussion

    0Reply
  • Tom Makinen
    Member since 2019 · 226 posts · 115 votes
    7y

    @Cameron Price  You seem to have a tough time understanding cash accounting vs. accrual/tax accounting.  The depreciation recapture is simply took back what you deducted before.  If you didn't have depreciation, you would pay more taxes up front and less money later.


    Let's say there is no depreciation recapture or depreciation at all.

    Year 1, you paid 25K.  That doesn't trigger any tax implication other than establish your cost basis.  

    Year 1-5  You made $8000 a year in rental income.  You are taxed on that $8K on your entire income per year.

    Year 5 you sold it at 40K, you will pay capital gains tax on the 15K

    Now you have depreciation

    Year 1 you paid 25K

    Year 1-5  You made $8000 a year in rental income.  Just to make it easy, let's say your depreciation is 1K a year.

    Year 1-5  You pay taxes on 7K (remember 8k without depreciation)

    Year 5 you sold it at 40K  you will pay capital gains tax on the 15K since your original cost basis was 25K

    Year 5  You already subtracted 5K (1x5) in depreciation between year 1-5, you have to add it back in to get back to your cost basis of 25K.  That means you have to pay the 5K in taxes to pay back the government the 5k you took from them in Y1-Y5.   

    This is not really political, this is not understanding accounting..... 

    0Reply
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