Should I form an LLC for investments or remain individual investor?

[M-MTax]

Is there a reason they require this?

Yes. It's in the tax code.....Sec 1016 and the regs under that section......depreciation allowed as deductions or ALLOWABLE. If no method is adopted then the default for recapture is depreciation allowable.

[Opus 17]

@sidekickin 

The reason you need to account for depreciation in this way is because the tax code requires it.  

as to why the tax code requires it, section 1016 was rewritten along with the rest of the tax code in a major rewrite in 1986, but parts of it were in existence as early as 1913. You would probably have to find an expert in accounting theory and history to explain why Congress decided to treat depreciation in this way.

The bottom line is that when you sell property, you must take into account all depreciation that was allowable over time. There is no exception if you chose not to claim depreciation that would have been allowable when you filed those prior tax returns.

[M-MTax]

@sidekickin you can read this..........https://scholarship.law.duke.edu/cgi/viewcontent.cgi?article=6676&context=faculty_scholarship for starters.

Most of the tax breaks in the code are put there by the elected folks in congress who are lobbied.....HARD....by special interest groups and the real estate lobby is strong and huge....one of the largest. The way congress raises more revenue through the tax code is by a combination of raising tax rates and compressing tax brackets AND ALSO by sneakily eliminating various tax deductions and credits. So you get your cost recovery deduction thanks to the RE lobby and they take it back by reducing your basis and recapture.