Rental Property & Depreciation

[JourneyToLaunch]

Hi-

I have owned a rental property (a condo) in NYC since 2005. I lived in the property for the first couple of years and then moved out and have been renting it ever since.

I have never claimed depreciation on my taxes on the condo since it became a rental. I have always paid someone else to do my taxes and they never suggested to me that I claim depreciation before, not sure why. This is the first year I am attempting to do taxes on my own and I see that I can claim depreciation.

I wanted to know the pros and cons of starting to claim depreciation on my rental for tax purposes.

Is it mandatory that I claim depreciation on a rental?

What are the benefits and what are the downsides of claiming depreciation?

The condo value has increased immensely since I bought it, so claiming depreciation reduces my tax bill on the rental, so that good, but not sure if I am missing other considerations.

Ideally, I would never sell the condo and just keep it as rental income but in the event that I do decide to sell in the future, how does claiming depreciation on my taxes impact a sale? 

[neo von retorch]

Claiming depreciation now does not affect what happens at a sale... which is that depreciation is "recaptured" and you'll pay taxes on that. So you really need to claim it now to offset that tax payment in the future. I'm not an accountant, lawyer, or expert on anything of importance, so I would see what other, wiser forum users have to say on the subject!

[Rightflyer]

This may be of limited value, coming from a Canadian perspective, but in my own experience it is the opposite of what neogodless says.

You pay tax on capital gains when you sell the property. If you have reduced your cost using depreciation then you will have a higher tax bill when you sell. Assuming your personal tax status remains the same it is usually a wash. You just defer paying tax.

[Rightflyer]

I should also note that it depends a lot on your net income from rentals as to whether it is better to use all or a part of your allowable depreciation rate. You may want to work up a spreadsheet to run some scenarios. Or get some professional advice.

[arebelspy]

Upon sale, you will have depreciation recapture whether you took it or not.  The IRS will assume you took it, and even if you didn't, you will need to pay it back.

Your two options right now are to go back and amend (for the years still eligible), or, better, IMO, just do catch up depreciation this year to bring you up to where you should be. 

If you don't have enough taxable income right now though, it may not be beneficial.  Consult a tax professional.