4 ms·
I'm not convinced by this argument -- my understanding is that when you sell property that you have claimed depreciation on, you have to factor in that deprecia
by lend000 9y ago
I'm not convinced by this argument -- my understanding is that when you sell property that you have claimed depreciation on, you have to factor in that depreciation to your cost basis. So if I depreciated 50k on a small commercial property I bought for 100k over 20 years and then sold it for 200k, I would be paying taxes on 150k of income. Granted, you could continue to defer these taxes and build wealth with 1031 exchanges, but I'm not sure how depreciation factors into that scenario.
- scarface74 9y agoYes that's true, but while you're both getting tax benefits before you sell it and you're making money on the appreciating. So you get to "depreciate" an appreciating asset. Even after taxes, it's a win. Besides, the tenants are actually paying down the debt. Your only investment is whatever relatively small down payment you've made. Hopefully tenant rents are enough to pay for upkeep. You don't pay cash for the real estate - you take advantage of leverage and at the most pay 20% out of pocket. While you own the building, the income you make isn't taxed because you can claim depreciation against your income. If you take into account the time value of money, if you take the tax free money and invest that in another long term asset and sell it, then you pay the much lower capital gains tax.
- eldavido 9y agoI think you hit it on the head. Buy it, rent it out, wipe all your taxable profit (or at least most of it) with depreciation, and then 1031 your way into higher and higher places. You'll have zero basis on xx million of real estate if you do this correctly, and have paid little income tax along the way from the rents. My old commercial landlord did this and probably owns like 30 mid-size buildings in Oakland.