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Depreciation (by Warren631 [PA]) Feb 4, 2023 7:02 PM
       Depreciation (by Robert J [CA]) Feb 4, 2023 8:27 PM
       Depreciation (by MikeA [TX]) Feb 4, 2023 10:30 PM
       Depreciation (by Busy [WI]) Feb 5, 2023 10:29 AM
       Depreciation (by myob [GA]) Feb 5, 2023 12:52 PM
       Depreciation (by Ray-N-Pa [PA]) Feb 5, 2023 9:39 PM
       Depreciation (by Marv [IL]) Feb 6, 2023 8:50 AM
       Depreciation (by S i d [MO]) Feb 6, 2023 8:59 AM

Depreciation (by Warren631 [PA]) Posted on: Feb 4, 2023 7:02 PM

I bought a 10 year old house. Do I depreciate over 27.5 or 17.5 years since it has already depreciated for 10 years? And what is its 'useful life' now?

Depreciation (by Robert J [CA]) Posted on: Feb 4, 2023 8:27 PM

If you did a straight purchase and NOT an Exchange, Then you must depreciate it over a 27.5 year period as a residential property with People going to live there. If it was a commercial property, then the depreciation period is 39 years.

However if you did an exchange and owned and depreciated your relinquished property for 10 years, then on your replacement property you would continue the depreciation for 17.5 years.

Depreciation (by MikeA [TX]) Posted on: Feb 4, 2023 10:30 PM

27.5 years from the time you bought it no matter how old the house is. Don't use logic, it's the IRS you know. Useful life per IRS is how they determined depreciation schedules. It's their standardized measure of how long an asset will remain in productive service, that measure is 27.5 years for a house that you purchased.

In reality though, useful life for a house has more to do with care and maintenance not age. I've seen 140 year old homes that are in great shape and 14 year old homes that had to be torn down because termites ate the complete structure.

Depreciation (by Busy [WI]) Posted on: Feb 5, 2023 10:29 AM

I love the NOLO Publishers tax books for stuff like this. If you order from their website, the books are eBooks only, but you can still get a paperback version through Barnes and Noble. Stephen J Fishman is the author, if I recall.

Depreciation (by myob [GA]) Posted on: Feb 5, 2023 12:52 PM

Busy WI I learned the second year of investing you gotta know what's coming so get the copy for the coming year AS SOON AS YOU CAN so you can plan.

Every year in paper so I can tab the highlights.

Right on with this advice BUSY. --108.239.xx.xx

Depreciation (by Ray-N-Pa [PA]) Posted on: Feb 5, 2023 9:39 PM

There are two depreciation types following a 1031 exchange two schedule and single schedule.

Two schedule depreciation is the preferred tax code method for calculating depreciation following a 1031 exchange. To calculate two schedule depreciation, you need the adjusted cost basis for the property you intend to exchange and the remaining cost basis of the replacement property.

The adjusted cost basis for the property you sell must be divided by 24.5 years. This rate is your first schedule of depreciation. The remaining cost basis of your replacement property must be divided by 27.5 years the second schedule.

Single schedule depreciation is a more straightforward method but is not the calculation preferred by the tax code. To calculate this type of depreciation, divide the new adjusted cost basis of the asset by 27.5 years or 39 years for commercial properties. This rate represents annual depreciation.

Depreciation (by Marv [IL]) Posted on: Feb 6, 2023 8:50 AM

You treat the depreciation as if you still owned the first house. Continue with your 27.5 schedule.

If you added more money at the sale, this will start out with new 27.5 year schedule.

Depreciation (by S i d [MO]) Posted on: Feb 6, 2023 8:59 AM

Depreciation is one of my favorite topics to discuss, as it is truly the 8th wonder of the world as far as real estate investors are concerned.

First off, understand this: Depreciation is a TAX concept that has no bearing in the real world. It's simply a way the Govt invented to prevent investors from taking the entire Cost of Good (i.e. the building we just bought) and expensing it against our income in year 1, then still having a ton of leftover expense to carry forward into future years. Uncle Sam wants his money NOW, so he only lets us deduct a portion of our expense each year.

Here's where it starts to get "funny"...

According to the depreciation logic, the building we own is gradually wearing out over time and becoming less valuable, until finally in year 27.5 + 1 day is it a worthless pile of junk with $0 value.

However, we know that isn't the case. We are keeping our property in good condition, and in most cases over 27.5 years the property is worth far more than what we paid for it.

As an added bonus, we get to write off all of our expenses making sure that the property stays in good condition and increases in value. So we get a double deduction: 1) for depreciation (building is falling apart) and 2) costs to prevent the building from falling apart.

As a further added bonus, once you sell the property, the depreciation magically resets. So that 29.5 + 1 day old piece of property that is worthless in the eyes on the IRS becomes fully valuable again as if it were built fresh today for whatever the sale price is as of the day of sale. It doesn't matter that it has already been fully depreciated once, twice, or 5 times.

If you paid $10,000 for it 27.5 years ago, then today it is worthless according to the IRS. If you sell it tomorrow for $500,000, now the IRS says it is worth $500,000.

MAGIC! This is why depreciation is a TAX concept and has no basis in reality. It's just a book-keeping game, nothing more.

So now that was a really long way to get to your answer. Depreciation resets--magically--whenever the property is sold to someone else regardless of whether it's 1 day old or 100 years old.

And now the added bonus x2... if you die and leave the property to your heirs, they will take possession under current tax law with depreciation wiped out. Again, magically it's as if the property were never depreciated. This is one time you sidestep (legally) the depreciation recapture tax. MAGIC!

This is how families build vast, multi-generational wealth: accounting tricks and IRS magic.


Subject: RE: Depreciation
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