While you can separate out some things like the appliances and the such, doing so on new construction really provides no benefit tax-wise. Remember, depreciation is *NOT* a permanent deduction. You are required to recapture that depreciation *AND* pay taxes on it, in the tax year you sell or otherwise dispose of the property. That recaptured depreciation increases your AGI and has the potential to put you in a higher tax bracket.
That's why I try my best to keep the depreciation I"m required to take by law, as low as a legally can. What "may" help me now, has great potential of biting me hard on the tax front, in the future.
Here's some comments I've heard on this.
- But my recaptured depreciation is capped to be taxed at a maximum tax rate of 25%?
True. But none of your other income has such a cap on it.
- But I will never be selling this house for as long as I'm alive?
Okay. So are you also saying that there's absolutely no chance the house could burn to the ground? Or that a tenant will never have cause to sue you for everything you own? Or any number of other things that could happen in your life not related to the rental property that could "force" you tell sell?
