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I'm not an expert, but as I understand it, your cost basis goes down by the appropriate depreciation amount every year, even if you don't claim the depreciation on your taxes. Which seems a bit bogus to me, but that seems to be the way the IRS says it is.

I'm no expert either, but your cost basis does not decrease by the depreciation amount.

Depreciation is a non cash expense that the much maligned IRS allows a taxpayer to use as a cash expense for wear & tear during the property's useful life. When you sell the property the IRS requires you to recapture the depreciation you took earlier. One can easily avoid recapture by owning the property until the depreciation taken equals the purchase price.


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