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Help me understand depreciation on a rental property
Posted on 10/12/23 at 9:14 am
Posted on 10/12/23 at 9:14 am
Probably starting this journey in 2024, wanted to make sure I understand my math correctly. Here's my questions:
You can write off mortgage interest and depreciation, correct?
Are there limits to how much depreciation you can take in one year?
The actual value of the house differs from the land, correct? If so, how does one deduce the value of the house?
So if I had an income of 200k and a house worth 300k, is one able to write off enough to zero out taxes in that year?
Anyone know where to find CPAs I can consult with for when this gets a little closer?
You can write off mortgage interest and depreciation, correct?
Are there limits to how much depreciation you can take in one year?
The actual value of the house differs from the land, correct? If so, how does one deduce the value of the house?
So if I had an income of 200k and a house worth 300k, is one able to write off enough to zero out taxes in that year?
Anyone know where to find CPAs I can consult with for when this gets a little closer?
7
Posted on 10/12/23 at 10:40 am to Thundercles
You can take the value of the entire property (250k), subtract the land value (50k), giving the house a value of 200k. You can depreciate that 200k over the next 27.5 years (7,250 per year). The value of the land is calculated on your property tax bill.
Lets say you make 2k per month in rent (24k per year).
Deduct your expenses (lets say 2k), mortgage interest(lets say 12k), property tax (lets say 2k) and depreciation per year (7,250).
24k - 2k - 12k - 2k - 7.25k = 2,750 of rental income that will be added to your taxable income
This is my current understanding. I'm new to the game as well and still learning.
Lets say you make 2k per month in rent (24k per year).
Deduct your expenses (lets say 2k), mortgage interest(lets say 12k), property tax (lets say 2k) and depreciation per year (7,250).
24k - 2k - 12k - 2k - 7.25k = 2,750 of rental income that will be added to your taxable income
This is my current understanding. I'm new to the game as well and still learning.
This post was edited on 10/12/23 at 10:48 am
Posted on 10/12/23 at 10:44 am to Thundercles
You depreciate it over the useful life of the asset usually 27.5 years. The tax software will set it up and will compute a fixed annual depreciation. You car write off mortgage interest, property taxes, HOA fees, repairs and maintenance, utilities, etc.
NOTE: Once you sell, you will have to pay back depreciation recapture, along with any potential capital gain.
Just search local CPA's in your area. Call one or two and ask for a meeting. If they blow you off, go to the next. You want to find someone who will give for information and not just bill you every time you ask a question.
NOTE: Once you sell, you will have to pay back depreciation recapture, along with any potential capital gain.
Just search local CPA's in your area. Call one or two and ask for a meeting. If they blow you off, go to the next. You want to find someone who will give for information and not just bill you every time you ask a question.
Posted on 10/12/23 at 12:12 pm to Thundercles
Passive loss rules may limit your ability to deduct losses from the rental property against your other income. Check with your tax adviser
Posted on 10/12/23 at 12:18 pm to texn
Thank you, this was a key piece that I was looking to understand and didn't know what it was called but seems to answer one of my biggest questions.
Posted on 10/12/23 at 12:49 pm to lsu for the win
quote:
You car write off mortgage interest, property taxes, HOA fees, repairs and maintenance, utilities, etc.
INSURANCE, PROPERTY MANAGEMENT and ON AND ON
Posted on 10/12/23 at 1:59 pm to Buddy the Tiger
I believe the dwelling is depreciated over 27.5 years like others have said, but I was able to deduct (hopefully legally) non attached property from the house over 5. Refrigerator, AC, etc. my CPA asked me to break down the value of each land, dwelling and non attached property.
Posted on 10/12/23 at 4:36 pm to Thundercles
Bottom line is, unless your modified AGI is too high, you are allowed to deduct up to $25,000/year of rental property losses (passive loss rules).
Any losses you cannot deduct are deemed "suspended losses", which can be deducted against passive income in future years or deducted in full when you dispose of that rental property.
I believe the maximum modified AGI at this point is $150,000.
Any losses you cannot deduct are deemed "suspended losses", which can be deducted against passive income in future years or deducted in full when you dispose of that rental property.
I believe the maximum modified AGI at this point is $150,000.
Posted on 10/12/23 at 7:56 pm to Thundercles
Depreciation is spread out over 27.5 years unless you get it surveyed and get “bonus depreciation”
Also your depreciations from rental properties can only go against rental income. It can only go against your entire income from other jobs if you or your wife have REPS (real estate professional) status
Also your depreciations from rental properties can only go against rental income. It can only go against your entire income from other jobs if you or your wife have REPS (real estate professional) status
Posted on 10/13/23 at 1:43 pm to Thundercles
Some good answers in here.
Building is depreciable, land is not. There are a few ways to do this.
1) Get an appraisal to look at it and determine. Almost no one does this especailly for single family residential.
2) Your tax assessor may have an allocation, so you can use the same pro-rata percentages against your total value at the time you place the property into service as a rental.
3) Allocate 80% to building and 20% to land. This is what most people do.
quote:
The actual value of the house differs from the land, correct? If so, how does one deduce the value of the house?
Building is depreciable, land is not. There are a few ways to do this.
1) Get an appraisal to look at it and determine. Almost no one does this especailly for single family residential.
2) Your tax assessor may have an allocation, so you can use the same pro-rata percentages against your total value at the time you place the property into service as a rental.
3) Allocate 80% to building and 20% to land. This is what most people do.
Posted on 10/17/23 at 1:36 pm to texn
For rent by owner.
Posted on 10/17/23 at 2:22 pm to Thundercles
I would suggest you read IRS Publication 527 - Residential Rental Property
Here is the link directly to IRS Publication 527
LINK
There is a section specifically on depreciation.
Here is the link directly to IRS Publication 527
LINK
There is a section specifically on depreciation.
Posted on 10/21/23 at 8:38 am to lsu for the win
quote:
mortgage interest, property taxes, HOA fees, repairs and maintenance, utilities, etc.
Can those come from primary income or are those only deducted from passive (rental) income?
Posted on 10/22/23 at 10:01 am to TigerMan327
quote:
Also your depreciations from rental properties can only go against rental income. It can only go against your entire income from other jobs if you or your wife have REPS (real estate professional) status
I think this is your answer. I think you (or your wife) need to work 750 hours (?) in a year on bonafide real estate investments to qualify as a real estate professional. Obviously, 750 hrs is only credible for a sizeable real estate portfolio.
Also, others have mentioned it, but think of the depreciation "write-off" as a deferral of taxes, not a permanent dodge of the tax man. When you sell, you will be taxed on capital gains of the fully depreciated property.
Posted on 10/22/23 at 4:10 pm to lsu for the win
Or 1031...
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