Can I Not Claim 'Depreciation' on my rental Property?

Question

Hi,

I am new to Rental & Not familiar with taxes.

I don't see much value by claiming the depreciation and as shown below, the allowed deductible rental loss is very less.

I want to understand the consequences for not claiming. Can some one please help me understand? Thanks

Russell Brazil · Answer

Its not a choice as to whether to claim. You have to pay depreciation recapture on the sale whether you claimed it or not.

Now, you might be able to use a higher or depreciation number based on how you calculate the land vs building value. I personally like lower depreciation amounts as I like to minimize that recapture on sale.

But consult with a real estate CPA like @Natalie Kolodij for best strategy.

Kyle Bambu · Answer

I'm not a tax expert either, but you want to claim the depreciation! Depreciation helps offset your income so that you pay less in taxes. For example, if you made 12k in income from your rental and your property depreciated by 12k or more in that year, then you don't pay income taxes for that rental income! Did your house really depreciate by 12k? Probably not. In fact, it probably appreciated so it's worth more. Depreciating assets can make it seem like you lost money in a period when in reality it is only a paper loss. If you ever sell the property, you will be subject to depreciation recapture whether or not you reported to the IRS depreciation on the property. So if you don't claim depreciation now, and you sell later, then you are losing out on both ends.

Kenny Dahill · Answer

@Raj Pal, I'm far from a tax expert. Always ask an account before making a decision.

However, depreciating helps lower your AGI so you pay less. There isn't a 'penalty' for not claiming depreciation; no legal requiring it. The consequence would be increasing your AGI and paying more in taxes.

Depreciating a house is 27.5 years. That window starts once the asset is put into operation as a rental, I believe but somebody will correct me if I'm wrong. Therefore if you decide to skip this year, you lost 1/27.5th of your depreciation period to lower your AGI.

Can I Not Claim 'Depreciation' on my rental Property?

Can I Not Claim 'Depreciation' on my rental Property?

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