From my understanding, your returns are taxed at ordinary income rates which is not ideal.

I mean you know when you bonus you have ordinary recapture and the potential for a lower basis quicker leading to bigger gains on disposal.

So I always hear people talk about cost segs and bonus but no one mentions the ordinary recapture component.The IRS doesn't like people taking ordinary deductions one year, then selling an item, and getting all capital gain later.So they created recapture, to match up amounts.

So a piece of property in terms of capital or ordinary treatment, relies heavily on the items intended use in the taxpayer's hand.It can turn an otherwise capital gain into an ordinary one.

You don't want to offset capital gains with ordinary deductions since ordinary rates are higher generally.

@Kim CoffmanIf you are making more than the allotted amount yes but it will not be upfront it will be after you exceed your basis and what you can deductBut on another note, the interest income from the loan is taxed at ordinary income rates - so sometimes it’s better to sell and pay the tax now and invest that money versus having it tied up in the property and taxed slowly over time where tax rates are probably only going up in the future

Your income you take on this will be taxed as ordinary income.

Of course that also doesn’t take into account taxes (which private lending is ordinary income so that gets whacked hard)

I would tell him he's responsible, but pretend to be nice and split the cost this first time.Fix your lease to make Tenant responsible for ordinary pest control.

Rental income from LTRs in only classified as passive income by the IRS for the purposes of separating it from non-passive ordinary income.