# Depreciate your rental or not?



## Karlhungus (Oct 4, 2013)

For those out there with a rental property, do you claim the depreciation on it every year on your taxes or not? My understanding is if you do, it gets added back on when you sell.


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## heyjude (May 16, 2009)

That is correct. If you plan to sell early, it might be better not to take depreciation. If you plan to keep the property for long term income, taking depreciation makes sense, especially when you are paying down a mortgage. That's what I do.


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## Plugging Along (Jan 3, 2011)

Some years I do, some I don't. It depends on what tax bracket and other deductions I have going. If we are already in a refund position I don't.


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## WiseOwl (Jan 1, 2015)

As the above posters elude to, the answer is really 'it depends'. The above are definitely some good considerations.

Another consideration that can be quite easily overlooked is whether you ever eventually plan to move in to the rental property. In that case, you will not want to claim CCA on the property. By never having claimed CCA, you will have access to an election to defer the capital gain that would otherwise be deemed to occur on the change-in-use until the year that you eventually sell the property. 

May seem trivial to think about when first starting to rent the property out, but I actually do see this scenario play out quite often in practice.


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## gt_23 (Jan 18, 2014)

Karlhungus said:


> For those out there with a rental property, do you claim the depreciation on it every year on your taxes or not? My understanding is if you do, it gets added back on when you sell.


Here's a rule of thumb I use, but it really depends on your age/tax situation:

Sell <= 4 years - no depreciation
4 year < Sell <8 years - partial deprecation (usually no more than 50% of allowance)
Sell >= 8 years - full depreciation

*this does not apply to US real estate, where the tax treatment is much better


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## Rusty O'Toole (Feb 1, 2012)

You are allowed to take depreciation but don't have to. So, use it if it will reduce your taxes but don't if it won't.

Depreciation is "recaptured" when you sell. Your profit = your selling price - your cost. Your cost is reduced by the amount of depreciation you take, so it makes your profit larger.

Most accountants will advise you to take the money when you can. In other words, if depreciation will save you money, take it.


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## CPA Candidate (Dec 15, 2013)

Think about this, do houses usually go down in value over time? Then why are you taking depreciation expense? It will have to be paid back in one giant lump sum as CCA recapture when you sell, pushing you into higher brackets possibly.


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