1st Post - income tax rental house/s depreciation

[Mike H.]

Hi BP!

First post here.  I'm a long time lurker.  This community is really cool.  

My background... I grew up in Gainesville, FL.  I worked my way through college and realized with my income I could buy a house.  I bought one and then bought the house next door.  Over the next 5 years through grad school I lived in one room and rented the other 5 out to all my friends.  Since then, I moved to Austin for about 8 years.  I bought, renovated, and sold a house there as well.  I got married and now live with my wife in Brooklyn.  I've owned/rented the two properties in Gainesville for about 14 years.  I paid 58k for the two bedroom and 98k for the 4 bedroom.  I rent one out for 750 and the other for 1300.  I estimate they are worth 80k and 140k respectively.  

My question is about depreciation.  My brother is a CPA in FL and has done my taxes my whole life.  Now that I'm in NYC and married he's cutting me loose!  I've been doing research on how to file my taxes and one thing I don't understand is depreciation.  I spoke with my brother and I asked him if he had been deducting depreciation on my previous taxes.  He said "no, you don't make enough income on your properties to make it worth it".  From what I've read on all the blogs, I should be taking depreciation.  Obviously, I've been tracking all the other expenses etc on my tax returns.  

Anyone have some quick advice for someone that's owned 2 rental properties for 14 years and never claimed depreciation?  My income has been around 75k for the last three years.  My wife makes a bit more than that.  We got married in 2016.  The properties in FL are in my name.  I'm going to see a CPA/CFA asap here but can't get an appointment until May.  My wife and I are going to do our taxes this weekend on TurboTax.

Thanks!!!

[Andy D.]

Ooohh, some guys here will have a field day! Your brother did not do you any good by not factoring in depreciation - as a lurker you will most likely have read about "depreciation recapture" at the time of a sale. Irrespective of whether you claimed it over the years or not.

For the past I can't, unfortunately, tell you how to fix this and if it's even possible past the 3-year period during which you can amend your returns (which you probably should do together with a CPA)

 But what I would recommend is to file for an extension with the IRS so you have more time to have a CPA look into your situation rather than rush into a (mostlikely incorrect) filing. Not surprised that you can't get anything at this point in time, though - it's tax season. But maybe some of the tax guys here can actually help you on short notice, who knows.

Bear in mind that if you do get an extension to file you would still be required to pay any taxes that you owe by 18 April 2017. If you do not, you will be subject to penalties after that date. Then again, this only applies if you owe something and is also not the end of the world with respect to the amount of the penalty should you indeed owe something - which, at this point, you don't even know. But with your (combined) income, factoring in deprectiation, in all good reality you won't owe anything in addition to what was already withheld by your employers.

Obviously, the above is by no means tax advice nor intended to be tax advice. Just a fellow investor who paid the IRS here or there a bit more than he normally would have to LOL