Claiming Tax Depreciation with low income

2 Replies

Heres the situation:

1. My income from my job is low. 

2. I have a cash flowing rental property.

3. My goal is to become more "bankable" (a better candidate to be approved for traditional lending) 

Question: Should I claim Depreciation on the rental, or will that make it look like I have less income and therefore less bankable? Do the two the two things affect each other or am I confused?

Tax depreciation will not impact your DTI ratio for borrowing purposes. The "I" in DTI uses the net cash flow on the property (rather than the taxable income on the property).

@Phineas Howie you are confused about the necessity to take the depreciation expense on your taxes. Whether you claim the depreciation expense or not federal tax law REQUIRES you to adjust the tax basis of your property for all depreciation "allowed or allowable".

As I explain it to my clients: The IRS is extending you a bowl of money and saying "you can take some if you want, however, whether or not you take any, we are going to tax you as if you have taken it." (In which case, it only makes sense to take it.)

Best of Luck with Your Investments!