One of the most often asked questions I hear is related to depreciation rules. Individuals or couples earning over $150,000 annually are barred by IRS regulations from taking any excess depreciation against their ‘ordinary’ (read: job) income. For many this is a very unhappy surprise, as it could mean the tax savings loss of nearly $10,000 yearly.
Ouch!
Let me put some salve on that wound for ya. If you were never allowed to apply any depreciation leftover from sheltering any cash flow generated by the property itself, the amount ‘recaptured’ will be considerably less than it would’ve been. If you consider that the rate for recapture is generally 25% vs 15% for most capital gains, this isn’t an insignificant factor.
Furthermore, that very same tax shelter (depreciation) you were barred from using, will eventually act as a shield to capital gains taxes. This will offer multiple tax benefits both immediate and long term in nature.
So don’t be too upset when you learn you ‘make too much’ from your job. Ultimately you’ll come out way ahead, especially as it relates to the bigger picture of tax sheltered retirement income. Remember, that’s the ultimate goal, right?
Right.
Where should your real estate investment dollars be headed now? Call me to find out. I’m at 619 889-7100. Have a good one.
