Unclaimable Depreciation

depreciation. My AGI (MFJ) is over $150,000. Call the net profit zero, it's pretty close.

not, since part of my overall loss position is still depreciation on the first property. Or maybe I can if the two properties are considered separate tax entities. I don't know.)

Do I simply claim zero depreciation for the year, and then whenever I sell the property someday, the basis is cost less whatever depreciation I claimed? (In other words, I don't get the tax deduction now, but it doesn't reduce my basis and therefore does reduce my taxable profit when I sell it.)

property and $3000 on the second, and I have a net gain of $6000 before depreciation. Is there some formula by which I have to allocate the actual $6000 depreciation I'm allowed to take between the two properties?

You need to start depreciation for the year the property is put into service. It's not optional. Remember, you depreciate the building (and contents) but not the land.

Unless you are a professional (you're not) you can't take the loss, it accumulates and gets carried forward. At some point, we hope you'd have a low enough mortgage and high enough rent that the carried loss wipes out the yearly income from the property. If not, upon sale you take all the loss that was carried forward and recapture the depreciation.

depreciation. My AGI (MFJ) is over $150,000. Call the net profit zero, it's pretty close.

not, since part of my overall loss position is still depreciation on the first property. Or maybe I can if the two properties are considered separate tax entities. I don't know.)

Do I simply claim zero depreciation for the year, and then whenever I sell the property someday, the basis is cost less whatever depreciation I claimed? (In other words, I don't get the tax deduction now, but it doesn't reduce my basis and therefore does reduce my taxable profit when I sell it.)

property and $3000 on the second, and I have a net gain of $6000 before depreciation. Is there some formula by which I have to allocate the actual $6000 depreciation I'm allowed to take between the two properties?

If you look at Schedule E you will see that both of your properties get listed on the schedule and that the gain and/or loss from each property after taking depreciation on each property into consideration, are added together to arrive at either a net gain or loss. If there is a loss, it would be disallowed based on your income and you would carry forward the loss to the following year. You have to keep good records for disallowed losses when you have multiple properties. Disallowed losses that get carried forward must be allocated to each property.

I see others have answered already. I just wanted to say the term "Investment Property" is confusing here. You really mean rental property, right?

Otherwise could you point me to a cite where depreciation is allowed on investments?

The combination of "investment property" and the reference to the $150K AGI cutoff led me to believe we were talking rental property. If not, the answers don't apply.

depreciation. My AGI (MFJ) is over $150,000. Call the net profit zero, it's pretty close.

not, since part of my overall loss position is still depreciation on the first property. Or maybe I can if the two properties are considered separate tax entities. I don't know.)

Do I simply claim zero depreciation for the year, and then whenever I sell the property someday, the basis is cost less whatever depreciation I claimed? (In other words, I don't get the tax deduction now, but it doesn't reduce my basis and therefore does reduce my taxable profit when I sell it.)

property and $3000 on the second, and I have a net gain of $6000 before depreciation. Is there some formula by which I have to allocate the actual $6000 depreciation I'm allowed to take between the two properties?

First, to clarify, yet I meant rental property.

So if I understand correctly... basically I accumulate the non-deductible depreciation. If I move into a profit situation, I can now use the unclaimed depreciation to reduce the profit to zero. If I sell the property before using it up, I still reduce my basis by the total depreciation, but I can in some way add the unused depreciation back in before calculating the gain on sale.

And the amount of unclaimed depreciation has to be allocated between the two properties.

depreciation. If I move into a profit situation, I can now use the unclaimed depreciation to reduce the profit to zero. If I sell the property before using it up, I still reduce my basis by the total depreciation, but I can in some way add the unused depreciation back in before calculating the gain on sale.

The losses carried forward don't care about their origin. You have interest, you have depreciation, the loss is carried forward. I say this because you used the term "unclaimed depreciation," while it's really just carry-forwarded losses.

Yes, when the properties go positive you'll see those forwarded losses negate the gain to zero. If you use TurboTax, it's a bit black-boxish in that if you don't look carefully at the return, you'd just not notice it. The first year this happens, your carried loss looks less as it got used up a bit.

As I recall when I sold a rental, the gain from that sale was cancelled by other property's carries losses. Depreciation is separate for each property, but the passive loss can offset the passive gain from the other property. Which of course leads to the desire to add properties to the mix as the old ones turning a profit can use the losses the newer one(s) can generate.

As indicated above, there is no 'unclaimable' depreciation. The accumulated depreciation stays with the originating property. You can have situations where it's not just the depreciation that gets trapped in the passive losses ( think FL Or AZ real estate with low rent and high mortgages). An interesting situation on selling a property with large PALs is that depreciation recapture is at 25%, while the passive loss deduction is at the ( possibly higher) marginal rate, resulting in a lower tax bill than you might have thought.

Similarly for depreciation on a home office: The taxpayer could sell the residence and still have depreciation which survives in a carryforward even after netting a profit on the sale against the carried expenses because the limit still applies, then die later without ever offsetting it. With IRC section 280A, the depreciation allocable to a year is NOT considered claimed in the year that generated its addition to the carryforward, but in the year it finally gets used (IRC 280A(c)(5)). Note that this means it might not get recaptured in the sale computation either.