Question

Rental property depreciation, is it optional?

Forum|Forum|4 years ago
March 14, 2022
2 replies
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Hello

Need some help here. I know we can use depreciation on rental property to reduce the rental income tax.

I am wondering if I can skip the depreciation for some year.

For example, for a year, the rental property for many months, so the rental income is less than the holding cost (property tax + mortgage interest + HOA ...) The cash flow is negative already. I don't want to count any depreciation for this year, as it doesn't give any benefit and avoid recapture tax in the future sale.

Is it reasonable?

Employee

Depreciating an Asset is not optional. It must be depreciated each tax year until the Asset has been fully depreciated.

ma777Author

Thanks DoninGA.

Let me use an example, the property was purchased at $500K on 2020/1/1.

In 2020, the rental income is $10K, the holding cost is $12K, depreciation is $6K. No tax on rental.

In 2021, the rental income is $10K, the holding cost is $10K, depreciation is $4K. No tax on rental.

When selling it at $500K on 2022/1/1, does it count the sale gain as $500K - ($500K - $6K - $4K) = $10K?

The owner needs to pay sale income tax on $10K. Is it right?

Employee

@Yes11_2, the 10k would be taxed as ordinary income on the tax return for the year of the sale.

ma777Author

To confirm it's not optional for depreciation. See post from another website.

https://learn.roofstock.com/blog/rental-property-depreciation-recapture#:~:text=Depreciation%20recapture%20occurs%20when%20a,to%20reduce%20your%20taxable%20income.