Depreciation - What the heck??!

[Cara Lonsdale]

A few questions...........

To what extend does depreciation really affect a person's taxes/capital gains on a property when it is sold?

Does it benefit or harm a person to claim LITTLE TO NO depreciation each year on a property?

Does it benefit or harm a person to claim MORE TO MOST depreciation each year on a property?

It would really be helpful if someone well versed or educated in the matter could expand on how reporting depreciation really affects the property when it comes time to sell, and capital gains and other deductions against the basis are calculated.  Anyone offering a clear understanding of how it works, and what the best course of action for reporting depreciation would be appreciated!

[Linda Weygant]

There's really no choice when it comes to taking depreciation on real estate.  The IRS has set guidelines for the amount of depreciation to take based on the property type, its use and a couple of other things.

When it comes time to sell, your capital gains and depreciation recapture (for a rental property) are calculated based on the amount of Depreciation Allowed or ALLOWABLE.  

This means that even if you didn't take depreciation or you took something less than what you were entitled to take, you still pay taxes for the Depreciation Recapture at the amount that you should have taken.

So you just calculate the proper amount and take it.  There's no strategy to employ on this.

Now if you're talking about accelerated depreciation methods for equipment, that's a completely different answer and whether or not to accelerate or not is dependent on a whole host of factors.