What confuses me is that fact that this doesn't seem to count against my taxable income.
This is one of many reasons why I try to keep my depreciation as low as I legally can. Many folks are of the incorrect impression that depreciation is a permanent deduction. It is not. You are required to recapture and pay taxes on that depreciation in the tax year you sell or otherwise dispose of the property. Two things about depreciation recapture.
1. Recaptured depreciation is added to, and therefore increases your AGI in the year of recapture. (Usually the tax year you sell the property.)
2. That increased AGI has the potential to bump you into the next higher tax bracket.
While recaptured depreciation can only be taxed at ordinary income tax rates up to a max of 25%, other income (such as gain from the sale) can be taxed at the higher tax rate. How it works out just depends on the numbers in the year you sell the property. For many, those numbers are impossible to predict.
My other property, that I've had for a few years (straight line depreciation, no bonus or segregation) shows up as a net negative (loss) because of the depreciation,
May have to do with the fact that you have not yet completed your return. Per the IRS (can't recall the publication), you can deduct a maximum of $25K of your passive losses against "other" ordinary income (such as W-2 income). But to do that, you have to have the "other" taxable income to deduct it from. Once you reach that $25K limit, any remaining loss is carried over.
Additionally, if your income is above a certain threshold (don't recall that amount) you don't qualify for that $25K against other ordinary income.
As for depreciation, I would not expect it to make any difference in your overall tax liability. When you add up the deductible rental expenses of mortgage interest, property taxes, insurance and depreciation, those four items alone are usually enough to exceed the total rental income received for the tax year. Add to that your other deductible rental expenses (HOA fees, repairs, maintenance, etc.) and you're practically guaranteed to show a loss on rental property every single year.
Now like I said, for those passive losses that exceed the passive income, you can deduct a maximum of $25K from other ordinary taxable income. But, you have to have the income to deduct it from, and your AGI has to be below a certain threashold.
Either way, anything not deducted on the 2022 tax return is automatically carried over to next year. You'll see that on the form 8582-Passive Activity Loss Limitations.
Just remember, the program can only work with the numbers it has "at" "this" "specific" "point" "in" "time". so until you've entered all of your income and all of your expenses (such as SCH A itimized deductions) the numbers will not be anywhere close to what you may expect.
