How Do Depreciation Schedules Work

[Josh Wallace]

I was discussing depreciation schedules as a benefit for real estate investors over the weekend. The person I was speaking with seemed to think that the write off involved with a depreciation schedule would be due upon sale of the property. Is that true or is depreciating a rental property a true write off? 

[Natalie Kolodij]

Originally posted by @Josh Wallace:

I was discussing depreciation schedules as a benefit for real estate investors over the weekend. The person I was speaking with seemed to think that the write off involved with a depreciation schedule would be due upon sale of the property. Is that true or is depreciating a rental property a true write off? 

Depreciation schedules is the name of the actual form generated in the tax return that shows how much depreciation will be taken/ has been taken each year/ starting basis and date put in service. 

You MUST depreciation a rental property. If it's residential it's over 27.5 years straight line depreciation. 

When you sell there is a recapture tax based on that depreciation taken. This comes into play with a property is sold for a gain. 

So if you owned a property for 15 years, and over that time took depreciation of $100k - Then $100k of your gain will be taxed at up to 25% rate as depreciation recapture separately from the normal capital gain tax rate on the rest.