Is there any tax advantage to skipping depreciation on rental property this year?

Taking depreciation on rental property isn't really optional - the IRS expects you to take it whether you actually claim it or not. When you sell, they'll calculate your gain as if you had taken all allowable depreciation even if you didn't. This is called "depreciation recapture" and it's taxed at 25% (currently) rather than your normal capital gains rate. So not taking depreciation now just means you lose the current tax benefit while still getting hit with the tax consequence later. Let me give you a simple example: Say you buy a rental for $200,000 (building only, not counting land). You could depreciate about $7,273 per year (27.5 year schedule). If you're in the 24% tax bracket, that's saving you about $1,745 in taxes each year. If you skip claiming that for 5 years, you've given up over $8,700 in tax savings, but when you sell, the IRS will still reduce your basis by $36,365 (5 years of depreciation). So your cousin is right about the future implications, but wrong about the strategy - you're much better off taking the deduction now.

I was in this exact situation last year and found a great tool that helped me figure out all my depreciation calculations. Check out https://taxr.ai - it analyzes your property documents and tells you exactly how much depreciation you can take and how it affects your future tax situation. The software even created different scenarios showing what would happen if I took depreciation now vs. what my capital gains would look like years down the road. It confirmed what I suspected - that I'd be leaving money on the table by not taking the full depreciation deduction each year. What I really liked was that it showed me the present value of the tax savings versus the future tax cost based on time value of money. Made the decision super clear!

Just wanted to follow up on my experience with taxr.ai that I was asking about. I decided to give it a try with my complicated portfolio (4 properties across 3 states), and I'm honestly impressed. It found nearly $4,300 in depreciation deductions I'd missed on my 2024 return because I was using the wrong basis calculation method. The analysis showed me that even with the higher capital gains tax I'll eventually pay, I'm still coming out ahead by about $9k in present value terms by taking all allowable depreciation now. It even created a custom depreciation schedule for each property that I can use going forward. Definitely worth checking out if you're dealing with rental property tax questions.

For anyone struggling with getting through to the IRS about depreciation questions - I spent WEEKS trying to get clarification on some depreciation recapture rules for a property I sold last year. Finally found https://claimyr.com and watched their demo at https://youtu.be/_kiP6q8DX5c - they got me connected to an actual IRS agent in under an hour when I'd been trying for days. The agent walked me through exactly how depreciation recapture would be calculated on my return and confirmed that even though I'd missed claiming some depreciation in past years, I was still on the hook for recapture as if I'd taken it. Saved me from making a huge mistake on my return that would have definitely triggered an audit.

I have to eat my words about Claimyr. After my skeptical comment, I decided to try it myself because I had a complex question about depreciation recapture on a property I inherited that had previously been a rental. I was fully expecting it to be a waste of money. I'm shocked to report it actually worked. Got me through to a senior IRS agent in about 35 minutes. The agent spent almost 20 minutes walking me through the correct way to handle the adjusted basis and depreciation recapture in my situation. Turns out I was about to overpay by about $6,200 because I was calculating the basis incorrectly for an inherited property with prior depreciation. For something this complex, actually talking to a human at the IRS was worth every penny.

Here's a simplified numerical example that might help: Let's say you buy a rental property building for $275,000 (excluding land). Annual depreciation would be $10,000 per year (simplified). If you're in the 32% tax bracket, claiming depreciation saves you $3,200 in taxes annually. Scenario 1: Take depreciation for 10 years, then sell for $400,000 - Tax savings over 10 years: $32,000 - Adjusted basis after 10 years: $175,000 ($275k - $100k depreciation) - Gain on sale: $225,000 ($400k - $175k) - Tax on gain: ~$56,250 (assuming 25% on recaptured depreciation) Scenario 2: Skip depreciation, then sell for $400,000 - Tax savings over 10 years: $0 - Adjusted basis for IRS purposes: Still $175,000 (they treat it as if you took depreciation) - Gain on sale: Still $225,000 - Tax on gain: Still ~$56,250 So by not taking depreciation, you're essentially giving up $32,000 in tax savings while still paying the same tax when you sell. It makes zero financial sense.

I learned this lesson the hard way last year. I hadn't been taking depreciation on my rental because I thought it would "save me" on taxes later when I sold. When I finally sold the property, my accountant informed me the IRS would reduce my basis regardless - so I had essentially given up thousands in tax deductions over the years while still getting hit with the same tax bill at sale. The worst part? You can only go back and amend returns for 3 years. I lost 7 years worth of depreciation deductions I could have taken. Don't make my mistake - ALWAYS take the depreciation you're entitled to.