Rental Property Purchase and Bonus Depreciation

[gregomr]

Hello,

I am looking for a rental property but want to fully understand the bonus depreciation for the first year and years to come. So, if I purchase the rental property at $1,000,000 and the market depreciation rate is 3% for the standard 27.5 years.  Does that mean I can amortize that over the 27.5 years and claim 60% of that amount for 2024. How can I calculate what that amount will be?

Also, since this will be in a single member LLC, this would also deduct my tax liability on my personal W2?

Thank you!

[AmeliesUncle · Accepted solution]

Bonus depreciation only applies to items that are depreciated for 20 years or less.  In other words, your real estate will not qualify for Bonus.  The entire amount would be depreciated over 27.5 years (assuming it is Residential Real Estate in the US and not rental periods of 30 days or less).

Other assets can be depreciated with Bonus (for example, appliances, tack-down carpet, etc.).

Assuming the Single Member LLC has not made an election to be taxed as a corporation, you ignore the LLC for income tax purposes.  If there is an ALLOWABLE loss, yes, it would offset your other income.  However, rentals are usually "passive" and depending on your circumstances, the loss may not be allowable and would be carried forward to future years until there is a profit or the property is sold.

[Carl]

Many folks fail to realize that depreciation is not a permanent deduction, unless you die - which of course doesn't help *you*.

When you sell depreciable property, all depreciation taken is recaptured *and* *taxed* in the tax year you sell the property. Two thing can happen with that in the tax year you sell.

1) The recaptured depreciation is added to your AGI.

2) The increased AGI has the potential to bump you into the next hither tax bracket. Weather it does or not just depends on the numbers.

If you don't depreciate the property, that doesn't help either. In the tax year of the sale you are still required to recapture the depreciation you *should* have taken, and pay tax on it.