On Feb 21, 4:30 am, Rich Carreiro <rlc...[at]animato.arlington.ma.uswrote:
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wow, didn't know that. good to know.

olivia wrote:

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True, but depreciation is not *optional*. When you place a unit in
service as a rental, you must take depreciation.
At worse, it should be a wash, look at the tax savings on the
depreciation taken, and put that money aside. When you sell, recaptured
depreciation is taxed at a favorable rate, so you should have more money
squirreled away than tax liability on the sale.

JOE
JoeTaxpayer.com

Mark Bole wrote:

[...]
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Oops, replace "unrecovered" with "unrecaptured".

-Mark Bole

Rich Carreiro wrote:
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First, please try to address your question to just one group rather than
multi-posting, this question more properly belongs in misc.taxes or
misc.taxes.moderated (where you also asked it).

As discussed, you don't really have a choice. And yes, it can "hurt"
your tax liability to some extent. Here's how: by deducting your
depreciation during years of service, you are using the expense to
offset ordinary income (taxed at ordinary rates) -- namely, your rental
income, and if the special passive loss rules apply, some of your other
ordinary income too, if you have a net loss on the rental (not uncommon,
when non-cash expenses such as depreciation are factored in).

So, when you sell, presumably at a profit, most of your gain is taxed at
favorable long-term capital gains rates -- except for the "unrecovered
section 1250 gain" which essentially is the part of your gain over basis
that represents accumulated depreciation. This can be taxed up to a
maximum rate of 25%, not ordinary 5%/15% capital gains rates -- but also
not more than your regular tax rate.

-Mark Bole

"olivia" <olivia.carmichael[at]gmail.com> writes:

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That is correct. Basis is reduced by allowable depreciation,
whether or not is was claimed.

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Sure. Just amend last year's return.

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Moot, since you can amend the 2005 return to claim it.

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I can't see how. The result on sale of will be the same
either way (since basis is reduced by depreciation even
if it is not claimed), and not claiming depreciation will
give you higher taxes in the interim.

--
Rich Carreiro rlcarr[at]animato.arlington.ma.us

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?
3. 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