Putting in expenses and/or asset depreciation actually increases my taxes?
Hi there - just wanted to understand how putting in either depreciation assets and or rental expenses such as management fees or repairs, in isolation, actually INCREASES my taxes? To me this doesn't make any sense. It would make more sense to me if there was a hard cap of expenses such that adding more expenses would not be deductible and thus neither increase/decrease taxes, but this tax increase showing onTurbo Tax does not make any sense. Someone please explain how this can happen?
So here is my situation. Property A is somewhat profitable, although this summer I renovated the house, so there were a lot of expenses plus new depreciable assets (new windows, new flooring, appliances, etc), plus no income for those 3 months. Let's say that the profit for this year is $10K. Property B is a condo that has losses because of land and asset depreciation (plus I get socked with high HOA fees that eats up any profit). Let's say that the profit for Property B is -10K. A third Property C out of state property that was our second home with no one else living in it was by happenstance turned into a rental. A lot of work was done to fix the house in early 2021, and was put up for sale/rental around February, but no acceptable takers for either and we rented out part of the house at the end of summer to a neighbor to defray a tiny bit of the costs. Profit on this at this point let's say is -15K. Since we did a lot of work on Property A and Property C, I was playing around with Turbo Tax with the assets and management expenses, and it turned out that if I eliminated assets and/or reduced the management expenses, the Federal tax actually went down, and vice versa. Which as mentioned in the first paragraph makes no sense. Any ideas?
