Acccelerated Depreciation

The June 4, 2007 edition of Forbes magazine contained its annual Investment Guide. One of the articles concerned accelerated depreciation for people who rent property.

A lot of real estate investors claim the simpler straight-line depreciation, where they deduct the initial value of a residential rental property i equal amounts over 27.5 years.

But, an alternative that can save you money is to claim depereciation using the more complex, accelerated way. Here, you break your property into components and group them according to life span. Then, you can write off some things for 15, 7, or even 5 years.

Typically 5 years is for things like appliances. Furniture can be depreciated over 7 years, and a 15 year schedule may apply to driveways, fencing, and shrubs.

Forbes recommended that accelerated depreciation is something to think about because there is a lot of software and websites (such as Depreciate'em).

There are some caveats, of course:

1. Some accountants don't feel it is worth the hassle for small landlords, both because of a greater chance for an audit, and the fact that many small landlords don't report taxable profits.

2. Accelerated depreciation only defers, not eliminates tax.

3. Forbes said that, if you sell the house at a profit, straight-line depreciation gets recaptured and taxed at 25%, but acelerated depreciation is recaptured as ordinary income and taxed at up to 35%.