Cade Grosskreuz

Spam prevention
Rainmaker
529,778
Candice A. Donofrio
Next Wave RE Investments LLC Bullhead City AZ Commercial RE Broker - Fort Mohave, AZ
928-201-4BHC (4242) call/text

It is actually quite complicated. But the simple and easy answer to the 'why' is that through depreciation and cost recovery, the tax burden for the investor is reduced. Sometimes significantly. Also, the yield that they'll enjoy on the properties can also be significantly increased if they're able to take advantage of the savings.
When I get back from driving I'll explain to you exactly how that happens. And I won't even charge you!

Feb 06, 2018 10:19 AM
Rainmaker
50,640
Joseph Domino 480-390-6011
HomeSmart - Scottsdale, AZ
Real Estate Made Easy

It's called Cost Recovery and it is exactly as it sounds. It provides an investor a means to recover the costs of an investment over time.

Depreciation (cost recovery) can happen several ways depending on the type of property. So as others have mentioned an investor should seek out competent assistance in determining the best method for calculating.

By the way, you stated that an investor MAY choose to depreciate property, but in many cases, depreciation is required. The IRS uses a rule known as "allowed or allowable". Failure to claim allowable depreciation may cost you at some future point in time.

Feb 06, 2018 11:21 AM
Rainmaker
4,073,497
Barbara Todaro
RE/MAX Executive Realty - Franklin, MA
"Franklin MA Homes"

I think you just made a score with free advice from Candice A. Donofrio ... if I were you, I'd absorb every bit of it....but DO NOT PLAY ACCOUNTANT to your clients.... they all need a CPA....

Feb 06, 2018 10:27 AM
Ambassador
1,925,626
Fred Griffin
Fred Griffin Real Estate - Tallahassee, FL
Licensed Florida Real Estate Broker

    See the comprehensive answers from Ken Jones, ASA, SCGREA and Candice A. Donofrio and Joseph Domino 480-390-6011

     If you are in a hurry, get the 411 from Caroline Gerardo .

Feb 06, 2018 12:08 PM
Rainer
170,243
Caroline Gerardo
Eagle Home Mortgage, LENNAR HOMES Home Loans - Newport Beach, CA
C. G. Barbeau the Loan Lady

Over 27 and a half years the owner can write off expenses of depreciation which makes them owe less income tax on the bottom line.

Feb 06, 2018 11:57 AM
Rainer
247,065
Ken Jones, ASA, CRES
Institute of Real Estate Technologies - Newark, NJ
Kenneth J. Jones

Cade Grosskreuz Depreciation is an allowance by the IRS which has absolutely nothing whatever to do with the actual real estate; it's merely an accounting practice.

Depreciation is an accounting concept that states that an investment becomes less valuable to its owner over time. This accounting practice actually flies in the face of market reality.

But, it does provide the investor the opportunity to keep more of their annual net cash-flow.

The one fact that most non-investors overlook, is that the amount of depreciation taken during the term of the investment (the number of years owned) must be ADDED BACK into the value, or "recovered," when that investment property is sold.

Consequently, while an investor may enjoy the annual benefit, they'll usually end up paying it back at some point in the future.

Even if the investor sells using the benefit of the 1031 tax deferred exchange, the depreciation will be calculated and carried forward if it's not taxed at the time of the 1031 transaction.

Good question.

Feb 06, 2018 11:51 AM
Rainmaker
2,220,123
Nina Hollander
RE/MAX Executive | Charlotte, NC - Charlotte, NC
Your Charlotte/Ballantyne/Waxhaw/Fort Mill Realtor

Since depreciation impacts each owner differently, you should seek advice from a CPA.

Feb 06, 2018 10:51 AM
Rainmaker
821,398
Carol Williams
U.S.: I specialize in helping agents who have been in the business 2 years or less create a thriving business. - Wenatchee, WA
"Customized Mentoring & Marketing Services"

It's all about the tax savings.  Listen to Candice A. Donofrio

Feb 06, 2018 10:50 AM
Rainmaker
4,402,639
Roy Kelley
Realty Group Referrals - Gaithersburg, MD
Roy and Dolores Kelley Photographs

Talk with your CPA to discuss tax driven strategies.

Feb 06, 2018 10:22 AM
Rainmaker
493,161
John Juarez
The Medford Real Estate Team - Fremont, CA
ePRO, SRES, GRI, PMN

An investor who choses not to take "allowed"depreciation because of the requirement to "recapture" the deprciation upon disposition may be suprised when, upon audit, the IRS imputes the recaptured deprecition that was allowed but not taken and thus not recaptured and that was not reported and assess additional taxes and interest.

Yes...that is a long sentence but if you read it more than once I think it makes sense. LOL!

Feb 06, 2018 05:06 PM
Rainmaker
2,523,627
Kathleen Daniels
KD Realty - 408.972.1822 - San Jose, CA
San Jose Homes for Sale-Probate & Trust Specialist

This is among the many reasons why investors need a highly competent and skilled tax planning and strategy consultant, CPA. 

Feb 06, 2018 11:51 AM
Rainmaker
707,962
Bruce Walter
Keller Williams Realty Lafayette/West Lafayette, Indiana - West Lafayette, IN

Cade, just remember that the IRS is going to add that back in to your cost basis when you go to sell in the future (assuming you don't 1031 exchange until the Second Coming) so it is really important to sit down with a professional who can explain how depreciation positively and negatively impacts you as an investor.

Feb 06, 2018 11:04 AM
Rainmaker
2,353,128
Richard Weeks
Dallas, TX
REALTOR®, Broker

"Be the source of the source, don't be the source"  Get your investor with a good CPA or tax attorney.  

Feb 06, 2018 10:21 AM
Ambassador
3,214,773
Bob Crane
Woodland Management Service / Woodland Real Estate, Keller Williams fox cities - Stevens Point, WI
Forestland Experts! 715-204-9671

Great explanation Candice A. Donofrio !

Feb 06, 2018 09:31 PM
Rainmaker
564,415
Richard Bazinet /MBA, CRS, ABR
AZuRE Team - Realty ONE Group - Scottsdale, AZ
Phoenix Scottsdale. Sellers, Buyers & Relocations

This is a big subject matter my friend. Take a class, or meet up with a pro in tax accounting. It's really not rocket science.

All (most) investment real estate can be depreciated. An investor MUST do this.

Feb 06, 2018 05:51 PM
Rainmaker
471,513
Anthony Acosta - ALLATLANTACONDOS.COM
Harry Norman, REALTORS® - Atlanta, GA
Associate Broker

Great question for a CPA to answer.  

Feb 06, 2018 03:31 PM
Rainmaker
3,542,510
Ron and Alexandra Seigel
Napa Consultants - Carpinteria, CA
Luxury Real Estate Branding and Marketing

Cade,

So glad Candice A. Donofrio gave you the answer.  I would also tell you and your investors to take the question to their financial advisors.  A

Feb 06, 2018 11:23 AM
Rainmaker
2,480,467
Wayne Martin
Wayne M Martin - Chicago, IL
Real Estate Broker

Candice A. Donofrio has you covered!

Feb 06, 2018 11:14 AM
Rainmaker
1,007,195
Ryan Huggins - Thousand Oaks, CA
www.HugginsHomes.com - Thousand Oaks, CA
Residential Real Estate and Investment Properties

Candice A. Donofrio has a terrific answer.  From my time in the corporate world I can tell you this:  Computers were on a five year depreciation.  That means that the company spent $1,000 on a computer and they would essentially write-off the decreased value of that "business asset" over 5 years.  At the end of that 5 years, they would dispose of that system and replace it with a newer one and start the process all over again.  I've been doing this for the last couple years with my laptop (well, my CPA has).  We'll likely be starting this as well with a business vehicle I bought this year too.

 

For houses, the depreciation is considerably longer and based on the "useful life expectancy" of a house.  With the exception of historical buildings, after so many years the house is so "out dated" you need to bulldoze it and build a new one (or at least do some significant remodeling at the structural level).  We see it out here quite often.  Houses built in the 70s and 80s have very compartmentalized floorplans and the bedroom was a place for sleeping, not living, and therefore are much smaller than today (either that or we've become "larger" as a people...).  Standards and lifestyles change.  People take out bedrooms to combine them or to add to a family living area.  For more on this, research "functional obsolescence"... and I'm digressing considerably so will end it here.

Feb 07, 2018 08:42 AM
Ambassador
2,351,504
Debe Maxwell, CRS
www.AtHomesCharlotte.com | The Maxwell House Group | RE/MAX Executive | (704) 491-3310 - Charlotte, NC
Charlotte Homes for Sale - Charlotte Neighborhoods

WOW! Candice A. Donofrio gave you a great answer!

Feb 07, 2018 06:53 AM
Rainmaker
4,053,952
Gabe Sanders
Real Estate of Florida specializing in Martin County Residential Homes, Condos and Land Sales - Stuart, FL
Stuart Florida Real Estate

A good question to ask your accountant.

Feb 07, 2018 06:10 AM
Ambassador
2,181,212
Debbie Laity
Cedaredge Land Company - Cedaredge, CO
Your Real Estate Resource for Delta County, CO

Candice A. Donofrio nailed this one. 

Feb 06, 2018 08:50 PM
Rainmaker
1,146,444
Mary Yonkers
Alan Kells School of Real Estate/Howard Hanna Real Estate - Erie, PA
Erie/PA Real Estate Instructor

Cade Grosskreuz You have several excellent answers from others here so I just wish you luck.

Feb 06, 2018 06:34 PM
Ambassador
1,307,151
Joe Pryor
The Virtual Real Estate Team - Oklahoma City, OK
REALTOR® - Oklahoma Investment Properties

Because the "tax loss" on paper can be greater than the actual gain.

Feb 06, 2018 02:18 PM
Rainmaker
1,306,097
Michael Setunsky
Woodbridge, VA
Your Commercial Real Estate Link to Northern VA

Cade Grosskreuz Can't add anything to what Candice A. Donofrio has said.

Feb 07, 2018 06:27 AM
Rainmaker
1,661,060
Michael J. Perry
KW Elite - Lancaster, PA
Lancaster, PA Relo Specialist

it's a PAPER write off to lower your taxes !!!

Feb 07, 2018 03:35 AM
Ambassador
3,720,483
Praful Thakkar
LAER Realty Partners - Andover, MA
Andover, MA: Andover Luxury Homes For Sale

Cade Grosskreuz - I'd leave it to the investors and their CPAs.

Feb 06, 2018 11:27 PM
Ambassador
3,490,737
Debbie Reynolds
Platinum Properties - Clarksville, TN
Your Dedicated Clarksville TN Real Estate Agent

It is a matter of saving taxes now when earnings may be higher and tax rates higher. Depreciation helps lower it over time but when you sell there is recapture. See an accountant for a more detailed explanation.

Feb 06, 2018 10:24 PM
Rainmaker
2,456,853
Will Hamm
Hamm Homes - Aurora, CO
"Where There's a Will, There's a Way!"

Good question, have to see what other have to say!

Feb 06, 2018 05:33 PM
Rainmaker
3,435,916
William Feela
WHISPERING PINES REALTY - North Branch, MN
Realtor, Whispering Pines Realty 651-674-5999 No.

This is a great question for a CPA

Feb 06, 2018 04:21 PM
Rainer
84,070
Harjeet Bhatti
MB Financial Bank - Schaumburg, IL
Home Mortgage Consultant 44 States

An investor who take depreciation  deduction benefit the tax savings 2nd when investor buy other property its income for him/her.  

Feb 06, 2018 12:02 PM
Rainmaker
3,345,985
Joan Cox
Metro Brokers - House to Home, Inc. - Denver Real Estate - 720-231-6373 - Denver, CO
Denver Real Estate - Selling One Home at a Time

That is why I have a CPA, I am a REALTOR.

Feb 10, 2018 11:20 AM
Rainmaker
812,768
Sam Shueh
(408) 425-1601 - San Jose, CA
mba, cdpe, reopro, pe

refer to tax guide or your CPA.

Feb 07, 2018 10:42 AM
Rainmaker
644,363
Olga Simoncelli
Veritas Prime, LLC dba Veritas Prime Real Estate - New Fairfield, CT
CONSULTANT, Real Estate Services & Risk Management

CPA area.

Feb 07, 2018 07:25 AM
Rainmaker
2,738,869
Tony and Suzanne Marriott, Associate Brokers
BVO Luxury Group @ Keller Williams Arizona Realty - Scottsdale, AZ
Serving Scottsdale, Phoenix and Maricopa County AZ

Good question for a CPA

Feb 07, 2018 05:53 AM
Rainmaker
3,825,101
Gita Bantwal
RE/MAX Centre Realtors - Warwick, PA
REALTOR,ABR,CRS,SRES,GRI - Bucks County & Philadel

You should talk to an accountant

Feb 07, 2018 03:43 AM