Contact UsI have a question about depreciation. can I not take depreciation so I can increase the Net operating income. I know I will pay more taxes ( my tax bracket is the 39% federal) but I will have more cash flow.
I ultimately will not sell the house but will use 1031 exchange so I don't have to worry about depreciation recapture. what do you think.
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John Stancil
It's not a matter of what I think, it is the law that is important here.
First, increasing your net operating income by not taking depreciation actually decreases your cash flow as you are paying more tax. Depreciation itself does not affect cash flow. Secondly, inflating your net income by not taking an allowed deduction is fraudulent.
Third, the Code requires that your basis be reduced by depreciation allowed or allowable. This simply means that your basis will be reduced whether you take depreciation or not. Thus if you do a 1031 exchange, the newly acquired asset will have a basis transferred from the old asset, including a deduction for depreciation taken or not.. And you WILL have depreciation recapture when you sell the asset.
You're treading on some very thin ice here, I suggest professional help, especially when it comes to a 1031 exchange asvit is a complex area of law. Remember, if you touch the cash, it can't be a 1031.
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402 weeks ago
First, increasing your net operating income by not taking depreciation actually decreases your cash flow as you are paying more tax. Depreciation itself does not affect cash flow. Secondly, inflating your net income by not taking an allowed deduction is fraudulent.
Third, the Code requires that your basis be reduced by depreciation allowed or allowable. This simply means that your basis will be reduced whether you take depreciation or not. Thus if you do a 1031 exchange, the newly acquired asset will have a basis transferred from the old asset, including a deduction for depreciation taken or not.. And you WILL have depreciation recapture when you sell the asset.
You're treading on some very thin ice here, I suggest professional help, especially when it comes to a 1031 exchange asvit is a complex area of law. Remember, if you touch the cash, it can't be a 1031.