topic Rental loss carryover vs depreciation question in Investors & landlords

Rental loss carryover vs depreciation question

jbstav17 — Mon, 09 Mar 2026 04:33:17 GMT

I have been doing some learning about tax implications for owning rental properties and I had a question.

Its my understanding that you can carry over net operating losses from year to year basically indefinitely until you sell one day and can write them off of your capital gains.

I also understand that if you purchase an asset for your rental, say a refrigerator, you have the choice to either deduct the full amount for that tax year, or depreciate the refrigerator over a certain amount of years and take the deduction divided up between those years.

My question is why would it ever be advantageous to depreciate an asset rather than simply deduct it for the current year, even if you are already operating at a loss, if those losses will just carry over indefinitely?

Or am I missing something...?

Thank you!!

(Do the write offs for expenses vs assets come off of a different part of the tax calculation?)

Re: Rental loss carryover vs depreciation question

Anonymous_ — Wed, 05 Jan 2022 16:39:45 GMT

@jbstav17 wrote:
Its my understanding that you can carry over net operating losses from year to year basically indefinitely until you sell one day and can write them off of your capital gains.

The losses to which you are referring are "passive activity losses", not net operating losses, but you are correct in your understanding that passive losses are suspended in certain instances.

However, prior year passive losses are not only released when there is a sale to an unrelated third party in a taxable transaction, they are also released to offset any passive income in future tax years.

Re: Rental loss carryover vs depreciation question

jbstav17 — Wed, 05 Jan 2022 16:45:34 GMT

Ah yes, I meant passive losses.

So if they are carried over from year to year, what is the point in depreciating an asset rather than taking the full deduction?

Re: Rental loss carryover vs depreciation question

Anonymous_ — Wed, 05 Jan 2022 16:50:00 GMT

There really is not much of a point; it is a matter of administrative convenience.

If a taxpayer can use the de minimis safe harbor to expense the asset, rather than depreciating it, then the taxpayer does not have to monitor a small depreciation deduction over several tax years.

Re: Rental loss carryover vs depreciation question

jbstav17 — Wed, 05 Jan 2022 16:54:40 GMT

Got it. I think that makes sense.

Re: Rental loss carryover vs depreciation question

Critter-3 — Wed, 05 Jan 2022 16:57:11 GMT

Once upon a time you could not expense certain items on the Sch E ... they all had to be depreciated. But that changed and certain 5 year items could be expensed instead. It is a personal decision to depreciate or not depending on how it will affect the bottom line of the tax return. Taking the expense even if you will not get a current tax benefit simply reduces the need to deal with depreciation tables for small expenses.

Re: Rental loss carryover vs depreciation question

jbstav17 — Wed, 05 Jan 2022 17:14:24 GMT

So basically its almost always better/more convenient to simply take the deduction for the current year rather than depreciate it, unless you have to depreciate it?

Re: Rental loss carryover vs depreciation question

Critter-3 — Wed, 05 Jan 2022 17:17:06 GMT

Most folks do but it is not required.