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Subject Author Date
Rental Property Depreciation for Current/Previous Year olivia 02-21-2007
Posted by olivia on February 21, 2007, 6:28 pm
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 I am a first time landlord and rented our previous home in
September-2005. When I filed my taxes last year, I did not
depreciate. My perception (or rather misunderstanding) was
that if I claim depreciation, that will be decreased from
the cost basis of the property and hence "reduce the buying
price" and hence increase my effective profit when I sell
the property in future years, hence increase my tax
liability when I decide to sell the property. As it turns
out, I was wrong. Based on the information that I have read
on the internet, it seems that the depreciation will anyway
be deducted and taxed when I sell the property whether or
not I have claimed it in the past years or not. Please
correct me if I am wrong here.

I have read some IRS publications regarding depreciation but
have not been able to get the answers that I need. I have
the following questions and would appreciate if you can
either point me to a resource, previous posts or please
answer this question for me.

1. Is depreciation taxed when I sell the property even if I
do not claim it in previous years is correct or wrong?

2. Can I claim the depreciation for previous year (since I
did not claim it then)? In my case, the home was rented for
only 4 months in 2005. If so, what form shoudl I be using to
do that?

3. From previous question, if I am not able to claim the
depreciation for the previous year (2005), will it
automatically be deducted from cost basis when I sell the
home in the future?

4. Is it actually better in some scenarios to not claim
depreciation and let it lower the cost basis in the year of
sale to claim a lower tax rate/liability then (if it indeed
is lower, I am not sure)? I seem to have read

I would appreciate any responses in this regard

Olivia

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Posted by parrisbraeside@yahoo.ca on February 22, 2007, 5:26 pm
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> I am a first time landlord and rented our previous home in
> September-2005. When I filed my taxes last year, I did not
> depreciate. My perception (or rather misunderstanding) was
> that if I claim depreciation, that will be decreased from
> the cost basis of the property and hence "reduce the buying
> price" and hence increase my effective profit when I sell
> the property in future years, hence increase my tax
> liability when I decide to sell the property. As it turns
> out, I was wrong. Based on the information that I have read
> on the internet, it seems that the depreciation will anyway
> be deducted and taxed when I sell the property whether or
> not I have claimed it in the past years or not. Please
> correct me if I am wrong here.
>
> I have read some IRS publications regarding depreciation but
> have not been able to get the answers that I need. I have
> the following questions and would appreciate if you can
> either point me to a resource, previous posts or please
> answer this question for me.
>
> 1. Is depreciation taxed when I sell the property even if I
> do not claim it in previous years is correct or wrong?
>
> 2. Can I claim the depreciation for previous year (since I
> did not claim it then)? In my case, the home was rented for
> only 4 months in 2005. If so, what form shoudl I be using to
> do that?
>
> 3. From previous question, if I am not able to claim the
> depreciation for the previous year (2005), will it
> automatically be deducted from cost basis when I sell the
> home in the future?
>
> 4. Is it actually better in some scenarios to not claim
> depreciation and let it lower the cost basis in the year of
> sale to claim a lower tax rate/liability then (if it indeed
> is lower, I am not sure)? I seem to have read
>
> I would appreciate any responses in this regard

1. Recapture of depreciation occurs whether or not you took
the depreciation in the United States. This is different in
Canada where recapture only occurs on what depreciation was
originally taken.

2. File an amendment showing the documentation. In Canada,
you use the T1-ADJ. In the United States, the 1040X. You
will need to provide the other forms.

3. In the US, yes. In Canada, no, in an appreciating market.
In Canada, yes, in a declining market.

4. In the US, no. In Canada, yes, in an appreciating market.
In Canada, no, in a declining market.

Declining market is one where the prices are going down.
Appreciating market is the inverse.

<< ======================================================= >>
<< The foregoing was not intended or written to be used, >>
<< nor can it used, for the purpose of avoiding penalties >>
<< that may be imposed upon the taxpayer. >>
<< >>
<< The Charter and the Guidelines for submitting posts >>
<< to this newsgroup as well as our anti-spamming policy >>
<< are at www.asktax.org. >>
<< Copyright (2006) - All rights reserved. >>
<< ======================================================= >>

Posted by Stuart A. Bronstein on February 22, 2007, 5:45 pm
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> I am a first time landlord and rented our previous home in
> September-2005. When I filed my taxes last year, I did not
> depreciate. My perception (or rather misunderstanding) was
> that if I claim depreciation, that will be decreased from
> the cost basis of the property and hence "reduce the buying
> price" and hence increase my effective profit when I sell
> the property in future years, hence increase my tax
> liability when I decide to sell the property. As it turns
> out, I was wrong. Based on the information that I have read
> on the internet, it seems that the depreciation will anyway
> be deducted and taxed when I sell the property whether or
> not I have claimed it in the past years or not. Please
> correct me if I am wrong here.

You're right. You have to recapture depreciation that is
"allowed or allowable." That means even if you didn't
actually take the depreciation, you have to treat it as if
you did.

> 1. Is depreciation taxed when I sell the property even if I
> do not claim it in previous years is correct or wrong?

If you could have legitimately taken depreciation, it is
treated as if you did when you sell.

> 2. Can I claim the depreciation for previous year (since I
> did not claim it then)? In my case, the home was rented for
> only 4 months in 2005. If so, what form shoudl I be using to
> do that?

File an amended return. You can't take last year's
depreciation on this year's tax return.

> 3. From previous question, if I am not able to claim the
> depreciation for the previous year (2005), will it
> automatically be deducted from cost basis when I sell the
> home in the future?

Automatically? Probably not. But if the IRS questions the
transaction, they will do it then.

Stu

<< ======================================================= >>
<< The foregoing was not intended or written to be used, >>
<< nor can it used, for the purpose of avoiding penalties >>
<< that may be imposed upon the taxpayer. >>
<< >>
<< The Charter and the Guidelines for submitting posts >>
<< to this newsgroup as well as our anti-spamming policy >>
<< are at www.asktax.org. >>
<< Copyright (2006) - All rights reserved. >>
<< ======================================================= >>

Posted by Benjamin Yazersky CPA on February 22, 2007, 5:45 pm
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> I am a first time landlord and rented our previous home in
> September-2005. When I filed my taxes last year, I did not
> depreciate. My perception (or rather misunderstanding) was
> that if I claim depreciation, that will be decreased from
> the cost basis of the property and hence "reduce the buying
> price" and hence increase my effective profit when I sell
> the property in future years, hence increase my tax
> liability when I decide to sell the property. As it turns
> out, I was wrong. Based on the information that I have read
> on the internet, it seems that the depreciation will anyway
> be deducted and taxed when I sell the property whether or
> not I have claimed it in the past years or not. Please
> correct me if I am wrong here.
>
> I have read some IRS publications regarding depreciation but
> have not been able to get the answers that I need. I have
> the following questions and would appreciate if you can
> either point me to a resource, previous posts or please
> answer this question for me.
>
> 1. Is depreciation taxed when I sell the property even if I
> do not claim it in previous years is correct or wrong?
>
> 2. Can I claim the depreciation for previous year (since I
> did not claim it then)? In my case, the home was rented for
> only 4 months in 2005. If so, what form shoudl I be using to
> do that?
>
> 3. From previous question, if I am not able to claim the
> depreciation for the previous year (2005), will it
> automatically be deducted from cost basis when I sell the
> home in the future?
>
> 4. Is it actually better in some scenarios to not claim
> depreciation and let it lower the cost basis in the year of
> sale to claim a lower tax rate/liability then (if it indeed
> is lower, I am not sure)? I seem to have read
>
> I would appreciate any responses in this regard

you should contact your CPA/tax advisor & amend last year's
tax return to claim the depreciation

___________________________________
<<< Benjamin Yazersky, CPA [NJ & NY] >>>
-----> real address on hobokeni or hobokenx <-----

<< ======================================================= >>
<< The foregoing was not intended or written to be used, >>
<< nor can it used, for the purpose of avoiding penalties >>
<< that may be imposed upon the taxpayer. >>
<< >>
<< The Charter and the Guidelines for submitting posts >>
<< to this newsgroup as well as our anti-spamming policy >>
<< are at www.asktax.org. >>
<< Copyright (2006) - All rights reserved. >>
<< ======================================================= >>

Posted by R. Pile on March 19, 2007, 2:42 am
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Residential rental property (single family detached house)
purchased for $44,000 and placed in service in 1981.

Without any other evidence, is it reasonable to assume the
depreciable building portion is two-thirds of the purchase
price ($29,333)? House sold in 2006 for $118,000; would
have been fully depreciated by the sale date as 15 year ACRS
property. None of the depreciation was after May 1997. The
adjusted basis is approx. $54,000, the gain is $64,000.

Reporting sale in Part III of Form 4797. Is the
depreciation portion of the gain taxed as ordinary income
(@28% in this case) or at the 25% rate? (Where is the 25%
rate on the Sched D worksheet?) Is the balance of the gain
taxed at 15%?

<< ======================================================= >>
<< The foregoing was not intended or written to be used, >>
<< nor can it used, for the purpose of avoiding penalties >>
<< that may be imposed upon the taxpayer. >>
<< >>
<< The Charter and the Guidelines for submitting posts >>
<< to this newsgroup as well as our anti-spamming policy >>
<< are at www.asktax.org. >>
<< Copyright (2006) - All rights reserved. >>
<< ======================================================= >>

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