I have a lower value home that might generate 400K of gain when I die. But I have a vacation home that was expensive to build, $1 million in the building alone. We rent the vacation home to help with expenses. Annual expenses and taxes are $35K, rental income is $35K.
It seems I “have” to depreciate the vacation home and use the annual depreciation to offset my rental income, according to tax rules. I think that some of this depreciation is not allowed on my tax form, since our income at the moment is high. But, the depreciation in full amount deducts from my vacation home’s basis, and ultimately, will leave a huge capital gain to my estate when I die and the house is sold.
Am I missing something? I don’t get the full value of the depreciation now, as offset against income, but I pay the full penalty for that depreciation in capital gains upon sale of the vacation home? Is there a smart way to minimize this loss?
Thanks Donald for your questions. Your vacation property sounds great. Unfortunately, I can’t answer any tax specific questions. I recommend consulting with your CPA.
All the best,
315 Madison Avenue, 24th Floor
New York, NY 10017
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