len@qumix.UUCP (Leonard Labar) (07/16/85)
I just read in the paper that the depreciation schedule for real estate investments was stretched out to 19 years vs. the previous ACRS method. Does anyone have real data on this? The article also said it was retroactive back to June 30th. Also was supposed to be certain to get approved this week. What a zinger! Since I just bought a rental townhouse you can imagine my concern. I had planned to rent it and resell in 5 years. How much would I lose from the previous ACRS depreciation schedule?
wts@burl.UUCP (wts) (07/23/85)
In article <815@qumix.UUCP> len@qumix.UUCP (Leonard Labar) writes: >I just read in the paper that the depreciation schedule for real estate >investments was stretched out to 19 years vs. the previous ACRS method. >Does anyone have real data on this? The article also said it was >retroactive back to June 30th. Also was supposed to be certain to get >approved this week. What a zinger! Since I just bought a rental >townhouse you can imagine my concern. I had planned to rent it and >resell in 5 years. How much would I lose from the previous ACRS >depreciation schedule? I have just recently sold some rental property (previous principle residence 1978-82 that I subsequently rented 1982-6/1985). When I complained to my accountant that because I was not eligible for ACRS depreciation on the property because of its purchase date (1978), and asked what schedule and time frame to set it up on, he advised plain old straight line depreciation. Since real residential property does not really depreciate, but appreciates in value, that the difference between the capital gain realized with ACRS, DDB, or any other accelerated depreciation, and what would be realized upon sale with straight line would not be subject to capital gains taxation. The difference would be taxable as ORDINARY INCOME. I set my depreciation schedule up as 20 years, Straight Line. Now upon sale all appreciation to the depreciated basis of the property is long term capital gain, and declarable at a much lower level. The moral of the story being that accelerated capital recovery may be advantageous in the short term, for property that in reality appreciates it will bite you in the wallet upon sale. William T. Sykes Federal Systems Division AT&T Technologies, Inc. Burlington, NC
peckham@cornell.UUCP (Stephen Peckham) (07/25/85)
> The moral of the story being that > accelerated capital recovery may be advantageous in the > short term, [but] for property that in reality appreciates, it > will bite you in the wallet upon sale. Not really. If you can deduct $1000 one year, but have to add $1000 to your income the next, you're better off than if you had had neither the deduction nor the extra income. The net effect is to delay by one year payment of tax on that $1000. In the meantime, you're earning interest that would have gone to taxes. Steve Peckham / CS Dep't / Cornell University / Ithaca / NY / 14850 / USA {uw-beaver,ihnp4,decvax,vax135}!cornell!peckham (UUCP) peckham@Cornell.ARPA (ARPAnet) ; peckham@CRNLCS (BITNET)
dys@homxa.UUCP (D.SZE) (07/25/85)
In response to William Sykes' response: > In article <815@qumix.UUCP> len@qumix.UUCP (Leonard Labar) writes: > > I just read in the paper that the depreciation schedule for real estate > > investments was stretched out to 19 years vs. the previous ACRS method. > > ... How much would I lose from the previous ACRS > > depreciation schedule? > ... that the difference between the capital > gain realized with ACRS, DDB, or any other accelerated > depreciation, and what would be realized upon sale with > straight line would not be subject to capital gains taxation. > The difference would be taxable as ORDINARY INCOME. > > ... The moral of the story being that > accelerated capital recovery may be advantageous in the > short term, for property that in reality appreciates it > will bite you in the wallet upon sale. Agreed that the difference (ACRS-SL) is taxed as ordinary income, but that is tax deferred income. It is doubly great that depreciation turns (ordinary, this year) into (long term, future year) - it is still singly great that ACRS turns (ordinary, this year) into (ordinary, future year). (Unless of course you have an alternative minimum tax problem.) David Sze Bell Communications Research West Long Branch, NJ