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Subject Author Date
Required Depreciation? ? ? Ray 04-09-2007
Posted by Stuart A. Bronstein on April 10, 2007, 10:25 am
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> My daughter got married in 2006 and began renting her
> previous house in November.
>
> I reported this rental income on Schedule E. I chose not to
> report depreciation on the ground that we would have to
> report recapture when she sells the house, probably within a
> year or two.
>
> But I ran across something in TurboTax which told me that
> depreciation is REQUIRED by the IRS.
>
> This doesn't make sense -- but then, a lot in the tax law
> doesn't make sense.

You're not really required to claim the depreciation. But
if you don't you will still be required to recapture the
depreciation that you could have taken when you eventually
sell.

Stu

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Posted by Rich Carreiro on April 10, 2007, 10:25 am
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> I reported this rental income on Schedule E. I chose not to
> report depreciation on the ground that we would have to
> report recapture when she sells the house, probably within a
> year or two.

You have to do that whether or not your claim depreciation.
Your basis in the property is reduced by *allowable*
depreciation whether or not you claim it.

So by not claiming it you're shooting yourself
in the foot (or the wallet :).

--
Rich Carreiro rlcarr@animato.arlington.ma.us

<< ======================================================= >>
<< 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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Posted by Bill Brown on April 10, 2007, 10:25 am
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> My daughter got married in 2006 and began renting her
> previous house in November.
>
> I reported this rental income on Schedule E. I chose not to
> report depreciation on the ground that we would have to
> report recapture when she sells the house, probably within a
> year or two.
>
> But I ran across something in TurboTax which told me that
> depreciation is REQUIRED by the IRS.
>
> This doesn't make sense -- but then, a lot in the tax law
> doesn't make sense.

First it isn't the IRS it is the United States Congress
which requires basis to be reduced by depreciation allowed
or allowable. In other words, basis goes down whether
depreciation is deducted or not.

> Advice, please.

Your daughter should deduct the depreciation she is entitled to.

<< ======================================================= >>
<< 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 Doug on April 12, 2007, 12:25 am
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Yes, the depreciation to be subtracted from basis is allowed
or allowable.

But I also agree with Ray, this is perhaps a silly part of
the tax code. The taxpayer is seeking to do something for
the sake of simplicity that will most likely result in him
or her paying missing out on a net tax savings. He or she
should be so permitted. This should be the choice of the
taxpayer.

Now, whether depreciation saves money may hinge on tax
bracket. Let me explain. Instead of the usual 15% capital
gains rate, depreciation recapture has a 25% capital gains
rate. Now, that will effect a net savings if you are in a
higher tax bracket (not to mention the time value of money).
But what if you are in the 25% bracket? Or, what if you're
in the 15% tax bracket, is depreciation recapture still
taxed at 25%? I suspect the answer is No, but I don't know
for sure.

-Doug

<< ------------------------------------------------------- >>
<< 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 Mark Bole on April 19, 2007, 4:11 am
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Doug wrote:
[...]
> Now, whether depreciation saves money may hinge on tax
> bracket. Let me explain. Instead of the usual 15% capital
> gains rate, depreciation recapture has a 25% capital gains
> rate. Now, that will effect a net savings if you are in a
> higher tax bracket (not to mention the time value of money).
> But what if you are in the 25% bracket? Or, what if you're
> in the 15% tax bracket, is depreciation recapture still
> taxed at 25%? I suspect the answer is No, but I don't know
> for sure.

25% is a *maximum* tax rate for unrecaptured section 1250
gain. The lower of 25% or your ordinary tax rate applies.

-Mark Bole

<< ======================================================= >>
<< 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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