The Motley Fool Discussion Boards

Previous Page

Financial Planning / Tax Strategies


Subject:  Re: inheritance of house - sale Date:  1/12/2013  11:05 PM
Author:  ptheland Number:  117354 of 127519

It's been about 4 years since she died.
So whatever amount the house was depreciated as during the rental period needs to be added back to income to pay taxes on?

Sort of. Your basis in the property is it's FMV on the date of death. That basis will be decreased by the depreciation allowed (or allowable) over the last 4 years. You'll figure any gain or loss from that figure.

Then does this mean claiming depreciation on a rental is pointless in the LONG RUN? That all doing that does is DELAY tax liability?

Sort of. Usually, delaying income taxes is a good thing. You get to keep the tax money in your pocket and potentially use it to generate income.

In the case of real estate, there's another benefit. The depreciation is a deduction against ordinary income. That ordinary income will be taxed at rates up to 35% (or now 39.6% in 2013 any beyond). But when you pay taxes on any gain, the tax rate on the portion of the gain that is attributable to depreciation taken has a maximum tax rate of 25%. So you could potentially save upwards of 10% in taxes through depreciation.

Copyright 1996-2018 trademark and the "Fool" logo is a trademark of The Motley Fool, Inc. Contact Us