1,052,221
It is actually quite complicated. But the simple and easy answer to the 'why' is that through depreciation and cost recovery, the tax burden for the investor is reduced. Sometimes significantly. Also, the yield that they'll enjoy on the properties can also be significantly increased if they're able to take advantage of the savings.
When I get back from driving I'll explain to you exactly how that happens. And I won't even charge you!
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Joseph Domino 480-390-...
Scottsdale, AZ
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Ryan Huggins - Thousan...
Thousand Oaks, CA
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Debe Maxwell, CRS
Charlotte, NC
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Michael Setunsky
Woodbridge, VA
-
Richard Bazinet /MBA, ...
Scottsdale, AZ
-
Will Hamm
Aurora, CO
-
John Juarez
Fremont, CA
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Michael Jacobs
Pasadena, CA
-
Pete Xavier
Pacific Palisades, CA
-
Debbie Gartner
White Plains, NY
-
Fred Griffin Florida R...
Tallahassee, FL
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Kathleen Daniels, Prob...
San Jose, CA
-
Ron and Alexandra Seigel
Carpinteria, CA
-
Nina Hollander, Broker
Charlotte, NC
-
Roy Kelley
Gaithersburg, MD
-
Barbara Todaro
Franklin, MA
508,318
It's called Cost Recovery and it is exactly as it sounds. It provides an investor a means to recover the costs of an investment over time.
Depreciation (cost recovery) can happen several ways depending on the type of property. So as others have mentioned an investor should seek out competent assistance in determining the best method for calculating.
By the way, you stated that an investor MAY choose to depreciate property, but in many cases, depreciation is required. The IRS uses a rule known as "allowed or allowable". Failure to claim allowable depreciation may cost you at some future point in time.
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Debe Maxwell, CRS
Charlotte, NC
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Pete Xavier
Pacific Palisades, CA
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John Juarez
Fremont, CA
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Fred Griffin Florida R...
Tallahassee, FL
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Candice A. Donofrio
Fort Mohave, AZ
-
Kathleen Daniels, Prob...
San Jose, CA
-
Cade Grosskreuz
5,583,278
I think you just made a score with free advice from Candice A. Donofrio ... if I were you, I'd absorb every bit of it....but DO NOT PLAY ACCOUNTANT to your clients.... they all need a CPA....
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Debe Maxwell, CRS
Charlotte, NC
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Mary Yonkers
Erie, PA
-
John Juarez
Fremont, CA
-
Kathleen Daniels, Prob...
San Jose, CA
-
Nina Hollander, Broker
Charlotte, NC
-
Roy Kelley
Gaithersburg, MD
2,684,109
See the comprehensive answers from Ken Jones, ASA, SCGREA and Candice A. Donofrio and Joseph Domino 480-390-6011.
If you are in a hurry, get the 411 from Caroline Gerardo .
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Debe Maxwell, CRS
Charlotte, NC
-
Mary Yonkers
Erie, PA
-
Richard Bazinet /MBA, ...
Scottsdale, AZ
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Candice A. Donofrio
Fort Mohave, AZ
-
Cade Grosskreuz
417,221
Over 27 and a half years the owner can write off expenses of depreciation which makes them owe less income tax on the bottom line.
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Debe Maxwell, CRS
Charlotte, NC
-
Mary Yonkers
Erie, PA
-
Cade Grosskreuz
-
Fred Griffin Florida R...
Tallahassee, FL
-
Candice A. Donofrio
Fort Mohave, AZ
5,104,931
Since depreciation impacts each owner differently, you should seek advice from a CPA.
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Mary Yonkers
Erie, PA
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Richard Bazinet /MBA, ...
Scottsdale, AZ
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Anthony Acosta - ALLAT...
Atlanta, GA
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Jeff Pearl
Lovettsville, VA
-
Kathleen Daniels, Prob...
San Jose, CA
2,178,703
It's all about the tax savings. Listen to Candice A. Donofrio .
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Debe Maxwell, CRS
Charlotte, NC
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Mary Yonkers
Erie, PA
-
Kathleen Daniels, Prob...
San Jose, CA
-
Candice A. Donofrio
Fort Mohave, AZ
-
Nina Hollander, Broker
Charlotte, NC
7,836,431
Talk with your CPA to discuss tax driven strategies.
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Debe Maxwell, CRS
Charlotte, NC
-
Mary Yonkers
Erie, PA
-
Anthony Acosta - ALLAT...
Atlanta, GA
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Jeff Pearl
Lovettsville, VA
-
Kathleen Daniels, Prob...
San Jose, CA
1,311,397
An investor who choses not to take "allowed"depreciation because of the requirement to "recapture" the deprciation upon disposition may be suprised when, upon audit, the IRS imputes the recaptured deprecition that was allowed but not taken and thus not recaptured and that was not reported and assess additional taxes and interest.
Yes...that is a long sentence but if you read it more than once I think it makes sense. LOL!
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Joseph Domino 480-390-...
Scottsdale, AZ
-
Debe Maxwell, CRS
Charlotte, NC
-
Candice A. Donofrio
Fort Mohave, AZ
-
Mary Yonkers
Erie, PA
3,345,091
This is among the many reasons why investors need a highly competent and skilled tax planning and strategy consultant, CPA.
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Debe Maxwell, CRS
Charlotte, NC
-
Candice A. Donofrio
Fort Mohave, AZ
-
Mary Yonkers
Erie, PA
-
Bruce Walter
West Lafayette, IN
938,637
Cade, just remember that the IRS is going to add that back in to your cost basis when you go to sell in the future (assuming you don't 1031 exchange until the Second Coming) so it is really important to sit down with a professional who can explain how depreciation positively and negatively impacts you as an investor.
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Debe Maxwell, CRS
Charlotte, NC
-
Candice A. Donofrio
Fort Mohave, AZ
-
Mary Yonkers
Erie, PA
-
Kathleen Daniels, Prob...
San Jose, CA
4,883,260
"Be the source of the source, don't be the source" Get your investor with a good CPA or tax attorney.
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Debe Maxwell, CRS
Charlotte, NC
-
Kathleen Daniels, Prob...
San Jose, CA
-
Nina Hollander, Broker
Charlotte, NC
-
Roy Kelley
Gaithersburg, MD
6,393,609
Great explanation Candice A. Donofrio !
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Bob Crane
Stevens Point, WI
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Debe Maxwell, CRS
Charlotte, NC
-
Candice A. Donofrio
Fort Mohave, AZ
716,049
This is a big subject matter my friend. Take a class, or meet up with a pro in tax accounting. It's really not rocket science.
All (most) investment real estate can be depreciated. An investor MUST do this.
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Debe Maxwell, CRS
Charlotte, NC
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Candice A. Donofrio
Fort Mohave, AZ
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Mary Yonkers
Erie, PA
2,220,654
Great question for a CPA to answer.
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Debe Maxwell, CRS
Charlotte, NC
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Mary Yonkers
Erie, PA
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Anthony Acosta - ALLAT...
Atlanta, GA
5,772,575
Cade,
So glad Candice A. Donofrio gave you the answer. I would also tell you and your investors to take the question to their financial advisors. A
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Debe Maxwell, CRS
Charlotte, NC
-
Jeff Pearl
Lovettsville, VA
-
Candice A. Donofrio
Fort Mohave, AZ
5,217,268
Candice A. Donofrio has you covered!
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Debe Maxwell, CRS
Charlotte, NC
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Mary Yonkers
Erie, PA
-
Candice A. Donofrio
Fort Mohave, AZ
1,502,998
Candice A. Donofrio has a terrific answer. From my time in the corporate world I can tell you this: Computers were on a five year depreciation. That means that the company spent $1,000 on a computer and they would essentially write-off the decreased value of that "business asset" over 5 years. At the end of that 5 years, they would dispose of that system and replace it with a newer one and start the process all over again. I've been doing this for the last couple years with my laptop (well, my CPA has). We'll likely be starting this as well with a business vehicle I bought this year too.
For houses, the depreciation is considerably longer and based on the "useful life expectancy" of a house. With the exception of historical buildings, after so many years the house is so "out dated" you need to bulldoze it and build a new one (or at least do some significant remodeling at the structural level). We see it out here quite often. Houses built in the 70s and 80s have very compartmentalized floorplans and the bedroom was a place for sleeping, not living, and therefore are much smaller than today (either that or we've become "larger" as a people...). Standards and lifestyles change. People take out bedrooms to combine them or to add to a family living area. For more on this, research "functional obsolescence"... and I'm digressing considerably so will end it here.
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Candice A. Donofrio
Fort Mohave, AZ
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Cade Grosskreuz
5,230,136
WOW! Candice A. Donofrio gave you a great answer!
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Anthony Acosta - ALLAT...
Atlanta, GA
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Candice A. Donofrio
Fort Mohave, AZ
4,800,082
A good question to ask your accountant.
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Anthony Acosta - ALLAT...
Atlanta, GA
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Debe Maxwell, CRS
Charlotte, NC
2,224,473
Candice A. Donofrio nailed this one.
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Debe Maxwell, CRS
Charlotte, NC
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Candice A. Donofrio
Fort Mohave, AZ
1,231,853
Cade Grosskreuz You have several excellent answers from others here so I just wish you luck.
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Debe Maxwell, CRS
Charlotte, NC
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Anthony Acosta - ALLAT...
Atlanta, GA
1,712,676
Because the "tax loss" on paper can be greater than the actual gain.
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Candice A. Donofrio
Fort Mohave, AZ
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Mary Yonkers
Erie, PA
1,466,207
Cade Grosskreuz Can't add anything to what Candice A. Donofrio has said.
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Candice A. Donofrio
Fort Mohave, AZ
2,182,552
it's a PAPER write off to lower your taxes !!!
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Debe Maxwell, CRS
Charlotte, NC
4,319,419
Cade Grosskreuz - I'd leave it to the investors and their CPAs.
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Debe Maxwell, CRS
Charlotte, NC
3,988,007
It is a matter of saving taxes now when earnings may be higher and tax rates higher. Depreciation helps lower it over time but when you sell there is recapture. See an accountant for a more detailed explanation.
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Debe Maxwell, CRS
Charlotte, NC
4,936,716
Good question, have to see what other have to say!
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Mary Yonkers
Erie, PA
3,986,258
182,915
An investor who take depreciation deduction benefit the tax savings 2nd when investor buy other property its income for him/her.
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Mary Yonkers
Erie, PA
2,071,025
1,598,452
5,868,565
1,239,901
900,238
3,071,489
4,434,127