1. Home
  2. Taxes General Forum
  3. Rental Property Depreciation for Current/Previous Year

Rental Property Depreciation for Current/Previous Year

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.

  1. Is depreciation taxed when I sell the property even if I do not claim it in previous years is correct or wrong?
  2. 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?
  3. 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?
  4. 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

> > > > > > > > >
Reply to
olivia
Loading thread data ...

  1. Recapture of depreciation occurs whether or not you took the depreciation in the United States. This is different in Canada where recapture only occurs on what depreciation was originally taken.
  2. File an amendment showing the documentation. In Canada, you use the T1-ADJ. In the United States, the 1040X. You will need to provide the other forms.
  3. In the US, yes. In Canada, no, in an appreciating market. In Canada, yes, in a declining market.
  4. In the US, no. In Canada, yes, in an appreciating market. In Canada, no, in a declining market. Declining market is one where the prices are going down. Appreciating market is the inverse.
Reply to
parrisbraeside

You're right. You have to recapture depreciation that is "allowed or allowable." That means even if you didn't actually take the depreciation, you have to treat it as if you did.

If you could have legitimately taken depreciation, it is treated as if you did when you sell.

File an amended return. You can't take last year's depreciation on this year's tax return.

Automatically? Probably not. But if the IRS questions the transaction, they will do it then.

Stu

Reply to
Stuart A. Bronstein

you should contact your CPA/tax advisor & amend last year's tax return to claim the depreciation ___________________________________

-----> real address on hobokeni or hobokenx

Reply to
Benjamin Yazersky CPA

Residential rental property (single family detached house) purchased for $44,000 and placed in service in 1981. Without any other evidence, is it reasonable to assume the depreciable building portion is two-thirds of the purchase price ($29,333)? House sold in 2006 for $118,000; would have been fully depreciated by the sale date as 15 year ACRS property. None of the depreciation was after May 1997. The adjusted basis is approx. $54,000, the gain is $64,000. Reporting sale in Part III of Form 4797. Is the depreciation portion of the gain taxed as ordinary income (@28% in this case) or at the 25% rate? (Where is the 25% rate on the Sched D worksheet?) Is the balance of the gain taxed at 15%?

Reply to
R. Pile

BeanSmart website is not affiliated with any of the manufacturers or service providers discussed here. All logos and trade names are the property of their respective owners.