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Financial Freedom => Taxes => Topic started by: HealthisWealth on September 15, 2018, 03:19:50 PM

Title: RE Investments/ Take depreciation deduction or not?
Post by: HealthisWealth on September 15, 2018, 03:19:50 PM
Hi All,
Recently I was having a conversation w/ a person who owns a lot of real estate. Their play is not rental, but just hold property in various cities and wait 10-30 years for it to appreciate.
I told him, I enjoy buying houses and renting it out. As long as my rent covers my mortgage and I put in the 20-25% down payment, its worth it in my books. I would get the mortgage interest and the depreciation write off (mortgage under $750k w/ the new Trump law). He mentioned its not worth depreciating your property, b/c in the end you'll have to pay the Govn't one way or another. I told him, when you're done depreciating the property, and you can't anymore then you would 1031 exchange it to another one to avoid taxes.

Am I playing the game wrong?
Title: Re: RE Investments/ Take depreciation deduction or not?
Post by: KAT1809 on September 22, 2018, 11:05:26 PM
I think you are correct in depreciating your property as the years go by.  You'll need to check the IRS rules to confirm this is the case, but doesn't the IRS assume you have taken the relevant depreciation over the years??? 

Regarding the person who owns a lot of real estate, is this real estate empty lots? or unoccupied buildings? If unoccupied buildings, that seems like such a waste of valuable resources.  Especially if these unoccupied buildings could serve as housing for people.
Title: Re: RE Investments/ Take depreciation deduction or not?
Post by: Money Ronin on October 03, 2018, 05:22:55 PM
I'm a real estate investor with several rentals.  I have a friend who is older and has been doing it much longer.  I've never heard of any investor not take the depreciation to save taxes but I'll give you a concrete example of why your associate is wrong.

My friend has owned his properties so long that his properties were running out of depreciation (I think the timeframe is 27.5 years).  This is a common problem for older investors and a reason why many trade up to restart the depreciation cycle.  So when does this trade-up cycle end and the government gets it's due?

Well, you've heard the old adage, "The only certainties are death and taxes."  In this case someone did die, his wife.  When this happened, all his assets including real estate received a step up in cost basis.  That means that he could have immediately sold his properties without capital gains tax and he wouldn't need to recapture the depreciation (and pay taxes).  Instead, he will hang on to the properties and restart the depreciation clock. 

You can guess what will happen when he passes away and his kids inherit his assets.  I'm not sure when the government will ever get its share.  Now all of this is still subject to the estate tax limits which were recently doubled in the 2017 tax law but dying with >$22.4M in assets is not a problem for most couples--not even my friend.  You can say his wife had a timely death.
Title: Re: RE Investments/ Take depreciation deduction or not?
Post by: jekamom on October 07, 2018, 07:53:59 PM
I think you are correct in depreciating your property as the years go by.  You'll need to check the IRS rules to confirm this is the case, but doesn't the IRS assume you have taken the relevant depreciation over the years??? 

Regarding the person who owns a lot of real estate, is this real estate empty lots? or unoccupied buildings? If unoccupied buildings, that seems like such a waste of valuable resources.  Especially if these unoccupied buildings could serve as housing for people.

Not a professional, but have a long term rental property we take depreciation on (or business is operated out of it).  All is good, make s sense and we will have a gain when we sell.  We also have a dwelling we purchased thru forclosure (we held the mortgage for a daughter, and useless ex left the marriage--hooray!).  As an investment, we don't have to have a tenant paying rent.  (As a rental, we must have market income, and she couldn't afford it and keep our grands in a safe place.) She is about to move on, life is now stable and safe for her.  We will sell it, cover our note, maybe take a loss. Fine.  If someone knows the choices they are making, great.  Value of resources isn't just money. It could be safety for those you care about.  Or waiting for a revitalization, and wanting properties to survive if historic? Or they need to get to a value where the asbestos or whatever mitigation is worth it? Don't just, just share folks.