Depreciation's impact

[Ross Ellington]

Good evening everyone. I wanted to ask about the depreciation on investment properties and the advantages it has. (or any disadvantages that I might not know about) I still feel foggy when it comes to the whole idea. Maybe someone out there can clear my mind :) Have a wonderful night and thanks in advance for any insight :)

[Jon Holdman]

A kicker on the recapture part is that you pay the tax on unrecaptured depreciation based on the amount of depreciation taken or allowed, whichever is greater.  As you take or are allowed to take deprecation, your basis in the property is reduced by the amount of depreciation taken or allowed (again, whichever is greater).   I can't find any reason not to take depreciation as you hold the property because not taking it doesn't reduce your tax bill when you sell.  Of course its better to tax based on the long term capital gains rate (15%) than the recapture rate (currently capped at 25%) and it would be better to use the original basis rather than the basis lowered by depreciation.  But that's not how it works.