[kccqzy]

This is exactly why many people became landlords, but changed their mind and found that there is no way out. You might decide one day to buy some investment property, but after a few years when you lost interest in the pursuit, quitting would actually give you a huge tax headache in the form of unrecaptured section 1250 gain. This is unfair. You can quit a W-2 job or a hobby without tax consequences.

[jcdavis]

Hard to sympathize with the landlord class too much on this one. Everyone knows how depreciation schedule works and gets in to it in no small part because of that deduction benefit + the hopes that via 1031 exchanges etc they can delay it until death.

[kccqzy]

> Everyone knows how depreciation schedule works

Everyone is way too strong a word. Unlike a regular job, there is no course or qualification needed to become a landlord. In the Bay Area I know lots of people in tech who bought a house, couldn’t afford mortgage payments (perhaps after a layoff) and decided to rent out parts of their house. Or perhaps just a particularly smooth talking real estate convinced someone to sell their stocks and buy investment property.

You might say that not knowing about all housing related costs upfront is evidence of financial illiteracy. You might also say not knowing about depreciation before buying a house is also evidence of financial illiteracy. You might even say committing to a mortgage payment while your own job prospects disappear is evidence of bad risk management. But in real life many people make bad financial decisions, landlords included. Landlords do not inherently have more financial aptitude.

[jcdavis]

I'll agree that "everyone" is probably an unfair characterization. But the tax benefits of depreciation are wildly touted among real estate investors.

If they didn't claim depreciation in prior years they can still get it via Form 3115. Yes this is complicated/annoying to do (almost certainly need a CPA), which you can argue is unfair, but I'm still going to have limited sympathy for anyone DIYing in this space without talking to a professional.

[evrydayhustling]

If I understand this correctly, the pain is because you depreciated the assets in the first few years, offsetting other tax liabilities, and now you must pay those back even if exiting the properties at a wash?

If so, it seems like the unfairness is in the other direction: landlording allowed you to essentially pull forward a tax credit, which a W-2 job doesn't allow.

[KennyBlanken]

Buying an investment property isn't a job. It's an asset, that possibly generates income. That is not a job. That's an investment.

A W-2 job isn't an investment. It's a job.

A hobby isn't a job or investment, it's a hobby.

You absolutely do have tax consequences if quitting the hobby involves selling equipment, particularly if that equipment was something that has to be registered, like a boat, car, ATV, etc.

[kccqzy]

It is a job. You need to manage and select tenants and handle repairs and maintenance. Managing one rental property is like a part-time job. But W-2 jobs may be part time too. It’s not like an REIT.

There are no tax consequences for quitting a hobby because you can’t deduct any expenses for hobbies in the first place, let alone any depreciation for these equipment.