I am a first time landlord and rented our previous home in September-2005. When I filed my taxes last year, I did not depreciate. My perception (or rather misunderstanding) was that if I claim depreciation, that will be decreased from the cost basis of the property and hence "reduce the buying price" and hence increase my effective profit when I sell the property in future years, hence increase my tax liability when I decide to sell the property. As it turns out, I was wrong. Based on the information that I have read on the internet, it seems that the depreciation will anyway be deducted and taxed when I sell the property whether or not I have claimed it in the past years or not. Please correct me if I am wrong here. I have read some IRS publications regarding depreciation but have not been able to get the answers that I need. I have the following questions and would appreciate if you can either point me to a resource, previous posts or please answer this question for me.
- Is depreciation taxed when I sell the property even if I do not claim it in previous years is correct or wrong?
- Can I claim the depreciation for previous year (since I did not claim it then)? In my case, the home was rented for only 4 months in
2005. If so, what form shoudl I be using to do that?
- From previous question, if I am not able to claim the depreciation for the previous year (2005), will it automatically be deducted from cost basis when I sell the home in the future?
- Is it actually better in some scenarios to not claim depreciation and let it lower the cost basis in the year of sale to claim a lower tax rate/liability then (if it indeed is lower, I am not sure)? I seem to have read
I would appreciate any responses in this regard
Olivia