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Tuesday, January 12, 2010

To depreciate or not to depreciate...

When renting out a property, the IRS allows the property to be depreciated...ruducing the net income that tax is paid on. Of course, later when the property is sold, capital gains will be calculated based on the depreciated value.

So, what to do? What to do? We are typically conservative, and it is not obvious that the value of the property will decrease. So, should it be depreciated?

Well, we have seen online references, and heard the same from an IRS representative, that it does not matter whether depreciation has been taken (on tax forms) or not! When it comes to Capital Gains, the IRS considers the property has been depreciating, whether or not the depreciation expense has been claimed.

One example of evidence is this language from the description of "decreases to Basis" in IRS publication 523 (Selling your Home): "Depreciation allowed or allowable if you used your home for business or rental purposes".


  1. Thanks Gord and Brenda for your enlightening info!

  2. If they consider your property has been depreciated when you sell the house (regardless whether you claim the depreciation expense or not) isn't it very stupid not to have claim the depreciation expenses when you rent it out?

  3. Zack, I absolutely agree. That was really my point.