Rental Property Depreciation


53 comments

  • Great explanation of depreciation, and I think I am going to find out how I can setup a call with your team.

  • Clayton, I'd be interested in your response to this article on BP (https://www.biggerpockets.com/renewsblog/2015/03/03/why-you-cant-make-money-on-30000-houses/) which uses the concept of depreciation's intent (as a tax "credit" for you to save for future real CapEx costs) to show why a $700/mo rent on an inexpensive house will never make money over time. Maybe you can comment on that analysis during your live YouTube event next week. Thanks!

  • Hi, I sold my rental last year and after watching your video I did not know this was possible. Can I depreciate my rental from passed years If I have never done this before?

  • do you have your house appraised every year to adjust depreciation?

  • does it matter how old the house is to reap the benefits of depreciation?

  • Wow. This is a great video.. Thanks so much im learning so much..

  • Does the cost segregation thing work for every state in the U.S? I own rental properties in California.

  • discflickerDotcom

    Way back in 2002, my mom bought a Michigan condo for $165,000 and then suddenly died, leaving it to my brother and I as T.O.D. We tried selling it, but the market was bad, so then we started to rent it in late 2004, and my brother also died around the same time. I tried to sell it numerous times, but the market never came back until recently. I finally sold it last year for $135,000, and so I assumed that I wouldn't owe anything on it, in fact, I would have taken a $30,000 loss.

    HOWEVER, my accountant shocked me with a last-minute total bill of about $28,000 to the IRS, the state of Michigan, and for paybacks for Obamacare tax credits and penalties for exceeding my income threshold!!

    He told me that he had computed the depreciation payback USING THE ENTIRE COST OF THE CONDO AS THE BASIS ($165,000) and then assuming it was rented the entire time (it was not rented until late 2004), so he came up with 14 years * ($165,000) * 1/27.5 = $84,000 in depreciation that I owed!!!

    I learned how depreciation works overnight last Wednesday, 11-Oct-2017, then I went back and discovered that the annual depreciation that THEY have been accounting for over the years was only $5919, not the full $6000 that you get when dividing $165,000 by 27.5. Also, I discovered that this $5919 was not based upon a $165,000 cost, it was based upon a ratio of land to building, which came up to 12.2% off the $165,000, and there were also startup costs added into the equation. And also, we didn't even start taking depreciation on it until late 2004.

    When I called him back the following day and reported these numbers/dates, he recalculated it to now be around $1,600 (vs. $28,000)!!!

    These people are professionals, and they do this for a living. My obvious questions for you are:

    HOW CAN THEY HAVE COMPUTED MY TAXES SO SLOPPILY?

    HOW COULD THEY HAVE MADE THE CALCULATIONS ABOUT THE COST BASIS WITHOUT EVEN ASKING ME FOR ANYTHING TO SUPPORT THEIR ASSUMPTIONS? HAVE YOU EVER HEARD OF A COST BASIS BEING COMPUTED USING SUCH PRIMITIVE TECHNIQUES AS TO NOT TAKE THESE OTHER FACTORS (LAND PERCENTAGE, STARTUP COSTS, ACTUAL START DATE OF DEPRECIATION) INTO ACCOUNT???

    I SMELL A BIG FAT RAT. I now believe that these guys were trying to pull a fast one on me… EVERY YEAR, they wait until the last day to finish my taxes, leaving me no time to even look at them to check for errors. They also have me fill out duplicate forms because they tell me that my identity may have been stolen, so one is for e-filing, and the other is in case the e-filing fails.

    I now think that they were going to either send the IRS a different set of forms or they were going to make an after-the-fact revision and then somehow intercept the refund, because it is not possible for them to have computed my taxes by such primitive techniques and reckless assumptions.

    Am I just being paranoid??

  • Depreciation restarts each time the house is renovated or sold? thanks

  • Awesome video Clayton. Thank You so much.

    Questions regarding (Depreciation).

    How does one determine the Price of the Property ÷ 27.5 Years?
    Do you go by (Initial Purchase Price of the Property) or (By Each Year Appraised Value)???

    Please advise.
    Thank You.

  • Hi morris why don't we just not report depreciation so we you sell the income property don't have to pay capital gain and taxes due to the fact that the building was depreciated for years. please Advice Thanks.

  • Great video! Clear and concise.

  • ive been using depreciation on both of my properties…could you make a video explain what is depreciation recapture. from what ive been reading this is the payback of the depreciation of the property over the years you claimed it. the rate of depreciation recapture is %25 on the profits on the sale of the home.

  • Do you have to pay back to the IRS all the depreciation you took when you sell the property?

  • For rental property cost segregation at reasonable price, please contact me. I know a company who does cost segregation using software for rental properties which do not involve engineers coming into the properties and assess ,etc.

  • Wow, you made it so simple

  • Depreciation is not as beneficial as everyone on youtube is touting. Once you factor in the depreciation recapture at sale, you essentially pay back in taxes all that you saved over the time you owned the house. No one ever talks about this.

  • magic cheeseball

    never goes to 0? i guess you have never been to Detroit lol . if you have a dilapidated building on a property that cost more to remove than the property is worth, how much is that property worth? less than 0 .

  • good stuff man!!!

  • WHAT RACE are you or ethnicity ?

  • First I would like to say that I love your videos. They are very very informative and I've gotten a lot out of them.
    I just sold a rental property and contacted a CPA that's new to me. I explained that I needed to use them because of a special service they provide plus I needed regular tax filing. I explained that I just sold a rental property and she mentioned "depreciation recapture". She said that the depreciation that was written off during the time of the ownership of the property will have to be repaid.

    Have you heard of this before?

    Thank for your time and keep up the good work

  • u kick butt

  • Exxxxxxxxxxxcellent!!!!

  • Hey bud! I just bought my first place I put 20% down on a 150,000 conventional mortgage loan. It is my primary resident's, but my parents are going to be living with me. And they want to give me 700 for rent, my mortgage payment is 900 a month. Which brings me to my question, would I be able to claim my house as a rental along with being where I live?

  • Something I don't understand: if houses depreciate, then why do their values usually go up over time?

  • Pawel Walentynski

    0:32 your welcome

  • I live in 1 half of my 2 family house and I rent the other half out…So I can put down the full amount of property depreciation for the year on my schedule E correct…? not just half of it?

  • Damn….And I was purposely working a lot less this year to avoid going over the maximum income for our health insurance, when I could of just claimed this instead !!!!

  • Question? I have just paid off my property and have never filed form 4562 does this mean that I still have 27 yrs to go on filing depreciation? I have rented for the past 10 yrs

  • Morris I have a question

  • What if the rental property is 28 years old or older? Does the depreciation tax advantage vanish?

  • Hi the base number to calculate depreciation is the amount paid for the property when I bought it ? or is the current value as the county taxes? Very helpful video .
    Thank you.

  • Question: Where do you get the figure for the house? My CPA has been claiming $2000+ on my rental but I am not sure how he got to this number. I do have an idea, but before I share that I would like to know what do you think. Great Video and I understand more now than I did 3 yrs ago.

  • House Sale 6 years later 300,000.00

    Pay for house 200,000.00

    claim depreciate over the years 43,000.00

    new roof increase property value 13,000.00

    total actual need be tax when sell house 343,000.00 213,000.00 130,000.00

    Base on the above spread sheet example.
    Am I suppose to claim all the repair every year or house owner save all the received while live in the house, make the claim for any property repair such as roof repair, … ???

    This is the part I do not understand

  • Just read my question again. I mean

    A) am I suppose to make house improvement claim all at once when sell the house or

    B)make claim every years while live in the house? Or

    C)do both? A)+B)

  • is this done before or after your expenses ? thank you

  • Thanks for the breakdown! Greatly appreciated!

  • So just to be clear, the figure you quoted at 1:44 in the example of $50,000 divided by 27.5 is just for the building value minus the land?

  • Is this video still current as of today's new tax law? Has it changed any with Donald Trump in office?

  • Was sitting at 666 likes…had to break the bad luck!

  • Hervé Arseneau

    "Stock Market can get to zero" WHAT??? really? the whole stack market? Apple, McDonald's, GM, Southwest, all the banks, Procter Gamble, Berkshire Hathaway, even companies who are exclusively in real estate, etc, etc, etc can go to zero? Any one of the companies on the stock market could go to zero, some have and some will, but the whole stock market?

    Now a lot of what he said about depreciation is good advice, but depreciation is a real expense. After your 27.5 years or so the roof is done, you will have painted 5 times over, changed the faucets, the bath will be almost done, the countertops, the floors etc etc. will have already been replaced a few times already, that is if you are a good landlord. If you don't do the repairs you can charge the depreciation and save income taxes, but your building is worth less. Maybe more than the purchase price because of inflation, but certainly less than when it was new in today's dollars.

  • Hayley Hightower

    Does this apply to a ground lease that I'm working on my land for a development with a publix anchor store?

  • Do you have to sell the property after you have completely depreciated the property?

  • Thank you so much!!

  • Hi Clayton – If I refinance my rental property, single family home, can i take the depreciation on the new (higher) loan amount?

  • Trying to study for my re license. Found this video. This guy has the most soothing voice. That paired with the background music could about put me to sleep 😀

  • This is awesome!

  • @Morris Invest, are you able to claim the same depreciation tax deduction if the property was a short term rental vs long term? Thank you.

  • Hello Mr.Morris,
    You rock!
    Let me ask you quick question: for Los Angeles using the same numbers as you mentioned @01:55– of this video my ty home is cost me $355,000 K. I divide it by 27.5 Years and I get $12,909 is what I get to depreciate for my taxes?

  • Here is my concern. If you depreciate the value of your rental property you have to pay back the the depreciation in taxes when you sell. So where is the gain? Seems like your just putting off the taxes for a later date. Yes, I have experienced this. Held rental property for 10 years, depreciated every year but then had to pay all that depreciated value back when I sold.

  • Jake Weaver-Thompson

    could not have been stated better!! Good stuff, keep it coming!

  • Brilliant love the way your plain stuff

Leave a Reply

Your email address will not be published. Required fields are marked *