Recapturing Depreciation

The benefits of depreciation deductions are somewhat offset by the requirement that all deprecation claimed on the property must be recaptured and taxed when the property is sold. Nevertheless, the investor will still come out ahead.

When the accrued depreciation is recaptured, it is taxed at 25%, slightly higher than standard capital gains . However, when you claim depreciation deduction, you potentially could use that to lower your taxable income. If you are in the 28% tax bracket, that's a base savings of three percentage points.

Moreover, when you consider that depreciation deductions allow you to enjoy your tax savings while paying a lower rate later, you actually come out way ahead.

Savvy real estate investors also realize that they don't have to pay capital gain and depreciation recapture taxes. They can dispose of their property through a tax-free real estate exchange. For more about depreciation recapture and capital gains , please review the "All About Real Estate Capital Gains" article.

The "Investment Property Tax Advantages" article contains two sections:

  • a href=""> Deducting Investment Losses
  • Deducting Depreciation
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