Should adding a depreciation expense increase taxes?

Forum|Forum|3 years ago
January 16, 2023
1 reply
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I own a profitable 3-family rental, and in 2021 I did a major renovation ($20k). So I was playing around with TurboTax 2021 to see the difference in long term depreciation vs. one-time deduction if it qualified. The odd thing was that my owed taxed increased (the realtime update TurboTax does at the top of the page) when I added a new depreciation line item of $20k.

Do I have some error somewhere in TT that would cause that, or is that expected?

Best answer by Anonymous_

There is always the possibility of an input error, so check your return thoroughly.

Also, there is the possibility that the deduction could subject you to AMT (alternative minimum tax), eliminate certain tax credits, etc.

Anonymous_Answer

Employee

There is always the possibility of an input error, so check your return thoroughly.

Also, there is the possibility that the deduction could subject you to AMT (alternative minimum tax), eliminate certain tax credits, etc.

TimTheLandlordAuthor

Thanks for the quick response. Assuming no errors and I am subject to AMT (very likely), it sounds like I would be better off not depreciating the improvements then. If I don't enter the renovation costs to avoid paying more taxes now, how would that impact me when I sell the rental property in 5-10 years (my target timeline to sell it)?

Tim