Posted by Bob In Indy on December 14, 2004 at 17:33:46:
Hi,
You don’t have to declare the depreciation as a deduction, but you will still have to alter the basis of the property (by the amount of the depreciation) when you sell it…so there’s no reason not to take it.
Depreciation is not a credit that can be transferred.
The owner of the property is the only one that can claim it.
Hope this helps,
Bob Meister
Can I give depreciation away? - Posted by Brian
Posted by Brian on December 14, 2004 at 13:00:51:
Here’s the scenario:
I bought a condo last Feb. 04’ and just bought a duplex Dec. 04’. I work a regular job that pulls in around 40k per year, but I think that I will be able to have enough deductions where I won’t have to use the depreciation on my duplex this year. Do I have to use the depreciation?
Enter variable #2: My dad is just getting ready to cash out and exercise some of his stock options and will inevitably get taxed at least 40% on those gains. He doesn’t have any investment real estate and would like to be able to use some of my depreciation that I won’t be using on my duplex.
Is that possible? If so, is it smart to use that depreciation if I don’t have to, or should I save it? I told my dad to buy a 4plex or something… he needs to do something to minimize his paper gains?
It should be noted that in return for the depreciation my dad will put 5k into an account that can be used for repairs, maintenance, etc. if needed for the duplex.
I figured this would be a good question to bring to all you genius “CRE junkies” out there.
Any feedback or advice is very much appreciated by both my father and myself.
Happy Holidays
Brian
Re: Can I give depreciation away? - Posted by Dave T
Posted by Dave T on December 16, 2004 at 06:52:23:
Depreciation is just one of the expenses that offset your rental income. If you have more expenses than income, you have a net passive loss. Up to $25K in net passive losses can be used to reduce your other taxable income.
Just because you don’t need the net passive losses to offset your other ordinary income does not mean that it goes to waste. Your unused passive losses can be suspended and carried forward to the next tax year when they might come in handy. If never used, suspended losses offset your taxable capital gain when the property is sold.
Don’t be too quick to give away something today that you might really need tomorrow.
Re: Can I give depreciation away? - Posted by Frank Chin
Posted by Frank Chin on December 15, 2004 at 08:18:10:
Brian:
An owner or part owner can take part or all of the depreciation. To do this, you must:
a) Get your dad on the deed
b) Prepare a partnership agreement that allows him to take all of the depreciation.
As for getting your dad on the deed, you can arrange as a gift so that he would not have to pay “income tax” on the equity.
But you’ll have to look at estate implications here as my attorney handling estate matters frown on the idea of giving gifts to parents which you may someday inherit, and thus pay inheritance tax. This of course depends on you and your dad’s estate issues, which is another big ball of wax best reviewed by estate attornies.
As to partners splitting up their respective interest in the properties, the partnership should cover the following elemements:
You’ll have to have an attorney conversant with RE and estate issues.
Years ago, I was told that due to a technicality, someone taking all the depreciation can take 99%, leaving 1% for the other partner.
Frank Chin