May 13, 2020
Question: Why do I have to claim depreciation expenses on my rental properties?
Technically, you do not "have to". However, this would be a big mistake! There is something called "recapture tax": When you sell the property, IRS will charge ordinary income tax rate to the extent of depreciation allowed or allowable on the property. Therefore, even if you didn't take the deduction, IRS will charge you recapture tax as if you did. Gladly, there are a couple of ways to fix this. You can amend your returns or to change your accounting method and claim all depreciation in the year of the sale.
The articles in this blog are for general information only. In accordance with IRS Circular 230 they are not considered tax opinions for purposes of relying on such statements in any challenge of the reporting of the above transaction by the IRS. If a full tax opinion is required certain procedures must be met . Also there is a significant cost for a full tax opinion to meet the requirements of Circular 230.