Depreciation is vastly overrated… - Posted by JHyre in TexOhio
Posted by JHyre in TexOhio on August 13, 2001 at 13:07:40:
Foregoing a 1031 to sell property at FMV & getting “steped-up” depreciation is a very bad idea 99% of the time…the only time I can think that it would make sense is if you have expiring losses or carryforward credits to offset gain upon sale of property. Otherwise, it’s a raw presnt value calculation…selling a property and paying taxes on gain now is not worth depreciation deductions attributable to the gain spread over 27+ years…ever.
Never let the tax tail wag the business dog…if I buy property and the depreciation shelters income from other sources (i.e.- rents< (operating deductions + interest + depreciation)), then I’ve bought poorly. The advice “Buy property so the depreciation shelters your income” MAY have made sense in the 80’s when depreciable lives on RE were much shorter…such advice makes NO sense in the 90’s. Rents are going up- congratulations- you are making more money after tax! Yes, you are paying more tax and are right to seek ways to shelter that income…buying additional depreciable property at high prices (relative to the income produced) so that other income is sheltered is a bad idea. Stick with your C-corp idea, among others.
John Hyre