Depreciation and Deal Analysis

[Scott Edwards]

The Bigger Pockets buy & hold analysis calculator does not take into account the tax benefit of long term ownership, which is substantial. When presenting the analysis to someone not aware of tax benefits, that would seem to be a major omission. Am I missing something here?

[Andrew Johnson]

Scott Edwards I would guess it’s because it’s hard to plug-and-play an “improvements” value into it. Maybe you can take a crack at using the assessors site in a market that updates annually, but good luck in California (just as an example). Then you can start talking through depreciation recapture, what if you 1031, what if you don’t, etc.

But I think it might also come down to simplification. When you look at depreciation as an “expense” you generally have a “money losing” property despite positive cash-flow. The quotes are intentional as you might not be actually losing money, but that’s beside the point. To capture the real benefit you’d also have to look at the marginal tax rate. The majority of people in BP are looking for cash-flow. If you make $50K a year that $200/month cash-flow isn’t going to be taxed highly and your mortgage interest will cover it. It might be a different ball of wax if you W2 $400K and Your cash-flow is $5K per money. But at that point you likely use a CPA and your tax advice isn’t going to come from a BP calculator.

Just my theories and hunches 🤷🏻‍♂️