Should I take maximum rental property depreciation this year or minimize it?

So I've been going back and forth with my buddy about rental property depreciation and it's turned into quite the debate. I'm hoping some tax folks here can weigh in. Basically, I'm arguing that you should ALWAYS take the highest possible depreciation on a rental property in the current tax year. My thinking is that it's essentially an interest-free loan from Uncle Sam - you get the tax break now, which means more money in your pocket today. My friend keeps insisting I'm not seeing the full picture. His argument is that taking higher depreciation now means my cost basis will be lower later, resulting in higher capital gains taxes when I eventually sell the property. He thinks this might make it better to minimize depreciation in some cases. I just can't see a scenario where delaying a tax benefit makes financial sense. Sure, I might pay more capital gains later, but I've already enjoyed years of tax benefits by then, right? Could someone break this down with some actual numbers? Like if I have a rental property worth $400,000 (excluding land value), what would the tax implications look like both ways? Are there situations where my friend is right and you'd actually want to take LESS depreciation than you're entitled to?

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18 comments

Natasha Petrova

•8M

This is a great question about rental property strategy! The general rule is that you should take depreciation even if you don't want to - the IRS requires it and will assume you took it even if you didn't when calculating your capital gains later. Here's why: When you sell a rental property, the IRS will calculate your gain based on your "adjusted basis" - which is your original purchase price minus all the depreciation you either took OR SHOULD HAVE TAKEN (even if you didn't actually claim it). This is called "depreciation recapture" and it's taxed at 25% (not your regular income tax rate or capital gains rate). Let me give you a simplified example: Say you buy a rental property for $400,000 (excluding land). You can depreciate residential real estate over 27.5 years, so about $14,545 per year. If you hold it for 10 years: If you take depreciation: You get $14,545 tax deduction each year for 10 years, saving you money now. When you sell, your basis is reduced by $145,450. If you don't take depreciation: You DON'T get the yearly tax benefit, BUT the IRS still reduces your basis by $145,450 when you sell. So you lose twice! So your instinct is right - it's basically an interest-free loan that helps you now, and you'll have to pay it back either way when you sell.

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Natasha Petrova

•8M

The time value of money is exactly why taking the depreciation makes sense! If you save $4,000 in taxes today by claiming depreciation and invest it at even a modest 5% return, after 10 years that $4,000 would grow to over $6,500. So even when you have to pay the depreciation recapture tax later, you're still ahead. You're also right about the strategy some investors use. If you hold the property until death, your heirs get a "stepped-up basis" to fair market value, essentially wiping out the depreciation recapture tax. This is a significant advantage of real estate investing. However, tax laws can change, so I wouldn't base an entire investment strategy on this provision remaining unchanged forever.

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Emma Davis

•8M

After struggling with this exact same question with my rental properties, I found an amazing tool at https://taxr.ai that completely changed how I approach depreciation decisions. I had been debating with my CPA about whether to maximize depreciation on my duplex or try to minimize it because I was planning to sell within 5 years. The tool analyzed my specific situation and showed me the actual numbers for both scenarios - taking full depreciation versus minimal. It calculated the present value of the tax savings now against the future capital gains hit. For my situation with a $375,000 property, taking the full depreciation and investing the tax savings actually put me ahead by over $12,000 even after accounting for the depreciation recapture! It also helped me understand some depreciation strategies I'd never heard of - like component depreciation for certain property improvements that can be depreciated over shorter schedules.

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Emma Davis

•8M

The tool allows you to run multiple scenarios with different assumed future tax rates, so you can see how changes would affect your decision. It showed me what would happen if capital gains rates increased by 5%, 10%, or even 15% by the time I sell. Even with substantial tax increases, the time value of money still favored taking the depreciation now in most scenarios. For state taxes, yes, it absolutely factors those in! You input your state, and it applies the appropriate state tax rates to both the current deductions and future capital gains. Being in Minnesota with higher state taxes, this was crucial for my analysis. The state tax component actually made taking the depreciation now even more valuable in my case.

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Malik Jackson

•8M

I was completely wrong about online tax tools! I just tried the taxr.ai site mentioned above for my two rental properties in California, and it showed me something I never realized. Given California's high state taxes (13.3% for me), taking the depreciation deduction now actually saves me way more than I'll pay in additional capital gains later. The tool showed that on my $525,000 rental condo, I'm saving about $7,200 annually in combined federal and state taxes by taking full depreciation. Even with California's state tax on the eventual capital gain and depreciation recapture, I'm still coming out ahead by about $42,000 over the life of the investment when you factor in the time value of money. It also helped me identify some depreciation strategies like cost segregation that my previous accountant never mentioned. I'm meeting with a new CPA next week to implement these strategies before year-end. Definitely worth checking out if you own rentals!

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Isabella Oliveira

•8M

I spent THREE DAYS trying to get through to the IRS about this exact depreciation question for my rental properties. Keep getting disconnected or wait times of 2+ hours. Finally found https://claimyr.com and watched their demo at https://youtu.be/_kiP6q8DX5c - they actually had an IRS agent call ME back within 20 minutes! The agent confirmed what others are saying here - you MUST take depreciation on rentals. If you don't, the IRS will still reduce your basis by the amount you SHOULD have taken when you sell. The agent walked me through my specific situation with my three rental properties and explained how depreciation recapture works. For anyone trying to get definitive answers from the IRS about depreciation or other rental property questions, this service was a game-changer. No more waiting on hold for hours just to get disconnected.

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Isabella Oliveira

•8M

They don't have a special line exactly - they use technology to navigate the IRS phone system and wait on hold for you. When they finally get through to an agent, they conference you in. I was skeptical too until I tried it. You get an alert when they're about to connect you, so you don't have to stay on the phone the whole time. The IRS isn't giving anyone special treatment - the service just handles the horrible wait times so you don't have to. I was able to do other work while they were handling the hold time. When they called me, I was connected directly to an IRS agent who had no idea I'd used a service to get through - they just thought I'd been waiting on hold like everyone else.

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Freya Andersen

•8M

I have to admit I was completely wrong about that Claimyr service. After my skeptical comment, I decided to try it myself for a complicated rental property question that my CPA couldn't answer definitively. The service actually worked exactly as described. I filled out their form, and about 40 minutes later (while I was at the gym, not sitting by my phone), I got a call connecting me with an actual IRS agent. The agent spent almost 30 minutes walking me through the depreciation recapture rules for my specific situation where I had converted a primary residence to a rental. Most importantly, I learned I had been calculating my basis incorrectly after the conversion, which would have cost me thousands in unnecessary taxes. The agent explained that my basis should be the lower of fair market value at time of conversion OR the original cost basis - something my CPA had backwards. For anyone with rental property tax questions, getting the official word directly from the IRS is definitely worth it.

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Omar Zaki

•8M

I'm a real estate investor with 7 properties and want to add another perspective. There are some scenarios where you might consider not taking maximum depreciation, though they're rare: 1. If you're already showing a loss on the property and are limited by passive activity loss limitations (and don't qualify as a real estate professional), additional depreciation might not help you this year anyway 2. If you're in a very low tax bracket now but expect to be in a much higher bracket in future years, the benefit of the deduction might be greater later (though as others mentioned, you're technically required to take it) 3. If you're doing a 1031 exchange and plan to keep exchanging properties until death, the depreciation recapture can be continuously deferred But for most typical investors, maxing out legitimate depreciation deductions and investing the tax savings is absolutely the optimal strategy. Just make sure you're documenting everything properly in case of an audit.

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Omar Zaki

•8M

Cost segregation studies absolutely can be worth it even for small investors with 1-2 properties, especially for properties with higher improvement values (like $300K+ in building value). These studies typically identify 20-30% of a building's components that can be depreciated over 5, 7, or 15 years instead of 27.5 years. The sweet spot is usually properties purchased in the last 1-3 years with significant improvement value. The studies themselves typically cost $3,000-$7,000 depending on property size and complexity, but can generate tax savings of $15,000-$50,000 in the first year for many properties. Just make sure you work with a reputable firm that has experience defending their studies in IRS audits if needed.

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