Selling vs Renting out

I don't think the depreciation deduction works that way. It can be an offset to the rental income if the property were cash flow positive, but you can't take it to offset your non-rental / ordinary income and get a tax benefit. Said differently, its capped each year as an offset to rental income. If its ready CF negative, you don't get a tax write off.
 
ChiKid24 said:
I don't think the depreciation deduction works that way. It can be an offset to the rental income if the property were cash flow positive, but you can't take it to offset your non-rental / ordinary income and get a tax benefit. Said differently, its capped each year as an offset to rental income. If its ready CF negative, you don't get a tax write off.
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True most of the time except if you income is below a certain amount then you can take active real estate tax losses of up to $25k against ordinary income OR if you are a real estate professional then you there is no cap on active real estate tax losses that can offset against ordinary income.
 
Burn That Belly said:
What do you guys think? Is 2% a very fair number in terms of overall appreciation, especially across a 6-10-year average?  I mean, rent is going up way more than 2% for TIC apartments.
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I would use the inflation rate as a conservative appreciation % like 2-3% annually, anything more than that is gravy.
 
ChiKid24 said:
I don't think the depreciation deduction works that way. It can be an offset to the rental income if the property were cash flow positive, but you can't take it to offset your non-rental / ordinary income and get a tax benefit. Said differently, its capped each year as an offset to rental income. If its ready CF negative, you don't get a tax write off.
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For my 2012 rental I am cash flow positive, so I can use this depreciation deduction.  For Delano, not so much.

However, if you invest say a 50% down payment on Delano, then you would be cash flow positive, and be able to take the depreciation deduction.
 
zubs said:
ChiKid24 said:
I don't think the depreciation deduction works that way. It can be an offset to the rental income if the property were cash flow positive, but you can't take it to offset your non-rental / ordinary income and get a tax benefit. Said differently, its capped each year as an offset to rental income. If its ready CF negative, you don't get a tax write off.
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For my 2012 rental I am cash flow positive, so I can use this depreciation deduction.  For Delano, not so much.

However, if you invest say a 50% down payment on Delano, then you would be cash flow positive, and be able to take the depreciation deduction.
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Well, eventually as it becomes cashflow positive, you will be able to deduct the carry forward losses from depreciation.  If you never reach the point of being able to claim depreciation before you sell, the plus side is that you won't have depreciation recapture tax to pay.
 
According to this article, the IRS don't care if you didn't deduct it.  They'll get their money when you sell.http://homeguides.sfgate.com/taking-depreciation-rental-property-hurt-sell-45457.html

It's true that if you sell your depreciated rental property for more than its depreciated value, the IRS will hit you with a depreciation recapture tax when you sell it. However, not depreciating your property will not save you from the tax -- the IRS levies it on the depreciation that you should have claimed, whether or not you actually did. With this in mind, depreciating your property doesn't hurt you when you sell it, but it really helps you while you own it.
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However, this works to my strategy of never selling rentals.
 
zubs said:
According to this article, the IRS don't care if you didn't deduct it.  They'll get their money when you sell.http://homeguides.sfgate.com/taking-depreciation-rental-property-hurt-sell-45457.html

It's true that if you sell your depreciated rental property for more than its depreciated value, the IRS will hit you with a depreciation recapture tax when you sell it. However, not depreciating your property will not save you from the tax -- the IRS levies it on the depreciation that you should have claimed, whether or not you actually did. With this in mind, depreciating your property doesn't hurt you when you sell it, but it really helps you while you own it.
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However, this works to my strategy of never selling rentals.
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You still need to claim depreciation on your taxes, but what I'm saying is the unallowed losses will cancel out the depreciation recapture when you sell.  So in real cash terms, you won't have to write as big of a check to the IRS upon selling.

However, if you plan on holding forever, it's a mute point anyway.  Eventually the property will become cashflow positive due to increasing rents and declining debt, and at that point you will be able to benefit from the carry forward depreciation. 

If you hold until you die, then your heirs won't have to pay any of the capital gains or depreciation recapture... It's one of the best tax breaks in the IRS code!
 
Generational wealth is created through property.

Why buy life insurance when you can just leave rentals to your family after you die?
I asked that to a life insurance salesman once, and he said there are different reasons life insurance is superior, but I wasn't convinced.

A few friends of mine manage multiple rentals and have no other job.  They inherited these rentals from their parents. 
I also collect houses.
 
zubs said:
Why buy life insurance when you can just leave rentals to your family after you die?
I asked that to a life insurance salesman once, and he said there are different reasons life insurance is superior, but I wasn't convinced.
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You get life insurance to borrow. And buy more properties, #winning
Haha
 
zubs said:
I'm in a "never sell my property" mind set.
Change my view.


Generational wealth is created through property.
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IMO, this is a super common and totally misguided mindset. Unless every time your property appreciates a little, you are constantly borrowing more against it to keep buying more rentals.

Otherwise, as your property appreciates and ltv starts going below 60-65%, it's really hard to get a good ROI unless you have a cheap mortgage and make very optimistic assumptions about appreciation, rents, maintenance, costs, etc.  Put it in a spreadsheet and it won't be hard to convince yourself.
 
yes leverage. yes there is risk but if you put 50% down on a property even the 3% yearly increase is like 6% earnings. Using other people?s money.
 
irvineband said:
yes leverage. yes there is risk but if you put 50% down on a property even the 3% yearly increase is like 6% earnings. Using other people?s money.
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That?s exactly my point. You got a 6% return on your own cash. Not bad but not a ticket to ?generational wealth? or worth having a ?never sell? mindset for. And the returns get worse as Ltv goes down
 
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