Why are people so obsessed on depreciation deductions?
I'm buying some properties built before 1985 and have been debating with friends who insist that it's always better to buy new property (even OTP), because they get the depreciation deduction "for free" and think it's money for nothing.
My opinion (which we agree to disagree on) is that depreciation is priced into the property, because depreciation is not just a deduction - it is real. The property actually depreciates, which is why un-renovated older properties are cheaper than newer properties.
Why pay $50k more for a property, to get depreciation deductions, and then find a developer comes along in 5 years next door and builds something exactly the same as what you had, but better and newer..
The only benefit I can see is the bank lending you more money than you would have gotten otherwise and improving cashflow artificially, but then you could just buy more cheaper properties instead.
I'm starting to doubt myself due to the strong reaction, but these are my thoughts and happy if someone more experienced can confirm or dispute that depreciation is NOT free because:
a) You pay a premium for the property;
b) The property will depreciate, even if the fact is hidden by market appreciation
c) In the end you have to pay it all back when you sell at a higher marginal tax rate due to CGT pushing your marginal rate up
I'm buying some properties built before 1985 and have been debating with friends who insist that it's always better to buy new property (even OTP), because they get the depreciation deduction "for free" and think it's money for nothing.
My opinion (which we agree to disagree on) is that depreciation is priced into the property, because depreciation is not just a deduction - it is real. The property actually depreciates, which is why un-renovated older properties are cheaper than newer properties.
Why pay $50k more for a property, to get depreciation deductions, and then find a developer comes along in 5 years next door and builds something exactly the same as what you had, but better and newer..
The only benefit I can see is the bank lending you more money than you would have gotten otherwise and improving cashflow artificially, but then you could just buy more cheaper properties instead.
I'm starting to doubt myself due to the strong reaction, but these are my thoughts and happy if someone more experienced can confirm or dispute that depreciation is NOT free because:
a) You pay a premium for the property;
b) The property will depreciate, even if the fact is hidden by market appreciation
c) In the end you have to pay it all back when you sell at a higher marginal tax rate due to CGT pushing your marginal rate up