[seadan83]

> Either your CPA friend is ignorant (since after all not all CPAs specialize in income tax) or you misunderstood.

I might have misunderstood, but he was keeping it simple for me. I'm 100% positive that he was correct though, to what angle - I'm not exactly sure.

After doing some more research on my own, I think the double-dipping stands. In essence it comes down to a statement like this: "my property is worth less year over year - look, the shingles are starting to come off! Oh, by the way, I spent $2000 fixing the shingles."

So, first, let's tackle depreciation. For rental, the entire property value depreciates and this is tax deductible. It's about 3% of the property value every year [2], regardless of any repairs. If there is an improvement made, that changes the cost basis [2, 4] which then changes the size of the pie where 3% is then taken out of that [2]. In essence, the IRS, per the tax code, essentially thinks that a rental property after 25 years will be worth nothing. To some extent, this makes some sense, appliances wear out, buildings do need maintenance and eventually they are re-modeled and re-done.

But, repairs & depreciation are mutually exclusive for the tax code, so long as that repair does not enter the 'improvement' territory. So, if you fix all of things that are depreciating, you still get to claim the depreciation overall, and you get to claim the repair costs of those depreciating items.

These are the resources I used:

[1] https://www.irs.gov/businesses/small-businesses-self-employe...

[2] https://www.investopedia.com/articles/investing/060815/how-r...

[3] https://www.nolo.com/legal-encyclopedia/tips-maximizing-repa...

[4] https://www.nolo.com/legal-encyclopedia/top-ten-tax-deductio...

[1] is interesting and has this key quote:

> You can deduct the costs of certain materials, supplies, repairs, and maintenance that you make to your rental property to keep your property in good operating condition

Note, it does not say "or" repairs, and that list does not include improvements. Basically this is to say, a $100,000 property after one year of renting, to the IRS is worth $97,000 - whether or not there was actually $3000 worth of wear and tear is immaterial, and if you spent $3000 to fix that wear and tear is also immaterial, you get to claim the depreciation and repairs both.

The [4] reference really emphasizes why land lords do not want to replace things, and instead will focus on repairs:

> Landlord Tax Deduction #3: Repairs A significant tax break for landlords can arise when they make repairs to their properties: The cost of repairs to rental property (provided the repairs are ordinary, necessary, and reasonable in amount) are fully deductible in the year in which they are incurred. Good examples of deductible repairs include repainting, fixing gutters or floors, fixing leaks, plastering, and replacing broken windows.

For some completeness, resource #4 addresses depreciation as the 2nd bullet point right before repairs:

> Landlord Tax Deduction #2: Depreciation for Rental Real Property The actual cost of a house, apartment building, or other rental property is not fully deductible in the year in which you pay for it. Instead, landlords get back the cost of real estate through depreciation. This involves deducting a portion of the cost of the property over several years (27.5 years for residential real property). Landlords can reap the benefits of depreciation even if the property increases in value.

Thus, my conclusion - if a person is fixing everything that is breaking and wearing out in a rental property - I don't see how exactly that property is depreciating by 3% every year. The depreciating things are getting fixed! I would call that double dipping. Reasonable people might still disagree.

Though, to the larger point, resource [4] has a section "Other Important Tax Tips for Landlords", reading through that list is a whole slew of things not available to W2 employees, eg: "A special tax rule permits some landlords to deduct 100% of their rental property losses every year, no matter how much." Taken in aggregate, tax-wise, it seems FAR better to be a landlord than a W2 employee. (A peer comment noted that 1099 get really great tax treatment, and that's basically the gist of it. If you can claim you are own your own boss - the tax breaks are huge, otherwise for the run-of-the-mill W2 - there are lot less tax breaks).

[PopAlongKid]

I assume by "double dipping" you mean, deducting the same expenditure twice.

There still is no double dipping. If you buy a $100K asset, and over its depreciable life you also spend $15K on repairs, then you have spent $115K in total and you only deducted $115K, not a penny more -- so no double dipping. Also, FWIW, if you later sell the fully depreciated asset, the entire sale price is taxable income.

>A special tax rule permits some landlords to deduct 100% of their rental property losses every year, no matter how much.

Yes, if one qualifies as a "real estate professional" (not easy for anyone who is not a full-time landlord). However, a successful real estate professional is not going to stay in business long if they have large losses every year.

[seadan83]

Thank you for the response. It is good context, and if I understand right it sounds like things even out if and when there is a sale.

I'm certainly somewhat cynical, IMO it is the rich that write the tax codes and laws... [1] I do wonder if the sale can be readily gamed. For example, do the sale after retirement, in a year where you have lots of stock losses from a recession or something.

Regardless, I appreciate the added context!

[1] https://www.thenation.com/article/society/cbo-american-wealt...

[creer]

You seem to be taking this all from the angle of a possible loophole. That's fine and all. But another way to look at it is:

Renting is a business. You can say let's tax gross income (and some places do that) but in general in the US only net income is taxed. That is income after costs. For renting there is the cost of the property, there is interest on various loans, there is the cost of maintenance and repairs, there is the cost of upgrades, there is utilities and local taxes, etc. For income there is the rent, and there is the proceeds from the sale of the property at the end, etc.

The cost of the property is a cost - that's hard to argue. The question would be how to take it into account. It's currently taken into account with depreciation (of the building, not the land for that matter.) A certain percentage every year goes against the income until it's fully depreciated. And then when the building is sold, the part of the cost that was depreciated is taxed (there is yet another calculation to decide at what rate it's taxed - depreciation reduced basis but "sale minus basis" does not necessarily get taxed at capital gains rate.)

The hows can get complicated but the general principle of "how to take into account the business costs" is pretty simple? And the building cost and maintenance are both costs. Doesn't really matter in there how long the building is supposed to last. It's a fairly arbitrary number in the calculation.

[If you do want to look at preferential treatment, you can look at "like kind exchange"]

[seadan83]

Thanks for the reply & pointers. My impression is that real estate simply has some of the best tax treatments. My assertion - the best tax treatments are for those that do not make wage income. For that to be true, there just needs to be far better tax breaks for someone who rents many properties compared to someone like me that has a single W2 job & a mortgage.

Yet, you do raise a good point, a building for a landlord is akin to a server for an IT company - both are tax write-offs. The world is full of nuance though.. I really appreciate the dialog.