It may be worth noting that when selling real estate "Like-Kind Exchanges Sec 1031" may be utilized to DEFER tax, but does not eliminate a tax burden which will need to be addressed SOMEDAY.
If that is something you consider when planning to sell real estate, be sure you use someone that understands how a 1031 exchange works.
Depreciation recapture is more an issue with Real Estate than it is with other assets, such as furniture, because Real Estate tends to INCREASE in value whereas other assets, such as furniture, wear out.
"I googled and found someone said in this scenario separating the depreciation of personal properties like furnitures will bring tax benefit when selling the house because things like furnitures can be sold at a loss."
If a rental with furnishings were sold, most likely you would allocate the selling proceeds to eliminate the remaining value of the furniture. For example- if I sell a rental for 100,000 with furniture that has a remaining basis of 5,000, I would allocate 5,000 to the furniture, and split the remaining 95,000 between land and house. If you only allocated 4,000 to the furniture, you would have a 1,000 loss on the furniture, but now 96,000 to split between the house and the land, so the bottom line would be somewhat similar. Yes, the loss on the furniture could reduce ordinary income, but you would be subject to "Netting and Look-Back".
If you wanted to go this route, you might want to have a Bill of Sale for the furniture separate from the contract for the real estate.
Depreciation is meant for decreasing the value of an asset over time, allowing a Taxpayer to spread that expense over years to offset the revenue that asset produces. When the asset is disposed of, or sold, any depreciation taken that is realized in the sale is "recaptured". This philosophy works well with things like furniture and equipment, but sometimes back-fires with real estate and vehicles, especially if the Taxpayer uses Bonus Depreciation and or Section 179 Deduction because the taxpayer takes TOO MUCH depreciation and is "on the hock" to pay some of that back when the asset is sold/disposed of.
Additionally, be aware that using Bonus Depreciation or Section 179 Deduction may cause a loss for the rental activity and that loss may be limited.
Any labor you provide is of no monetary value, only work done by a contractor whom you pay qualifies as an expense and if that was done before the house was available for rent, it would need to be added to the basis of the property.
DON'T FORGET TO VALUE THE LAND AND THAT WILL NEVER BE DEPRECIATED.
IRS Rental Tips
IRS Depreciation FAQ
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