Passive Activity losses and depreciation

[Steve M]

Client has rental properties that he bought in 2007. However, because of AGI, he cannot claim any passive activity losses. When I complete Schedule E, part of those losses are depreciation of the structures. Since he cannot benefit from the losses, do you still claim the depreciation? If you do, on the sale, you will recoop the decpreciation even though he never benefited from the depreciation. Seems unfair and illogical. Is there some way to prevent this?

Steve M

[bay]

Client has rental properties that he bought in 2007. However, because of AGI, he cannot claim any passive activity losses. When I complete Schedule E, part of those losses are depreciation of the structures. Since he cannot benefit from the losses, do you still claim the depreciation? If you do, on the sale, you will recoop the decpreciation even though he never benefited from the depreciation. Seems unfair and illogical. Is there some way to prevent this?

Steve M

Yes, you are required to take depreciation and any passive activity loss is carryforward and is recouped when the property is sold.

[Steve M]

Client has rental properties that he bought in 2007. However, because of AGI, he cannot claim any passive activity losses. When I complete Schedule E, part of those losses are depreciation of the structures. Since he cannot benefit from the losses, do you still claim the depreciation? If you do, on the sale, you will recoop the decpreciation even though he never benefited from the depreciation. Seems unfair and illogical. Is there some way to prevent this?

Steve M

Thanks, forgot that he would recoup the passive activity losses when he sells. Makes sense now.

Steve M

[Randall]

You can also elect SL depreciation to lower the depreciation expense up front.

[Randall]

Scratch that. Not real prop of course.