How big a factor is "running out of" depreciation for long term property owners? It would seem to me that anyone who purchased property 25+ years ago, not being able to use depreciation vs. cash flowing an asset that has probably gone up in value many times over, depreciation isn't going to be the man factor is deciding that now is the time to sell, especially considering the challenges in locating a 1031 upleg.
Any thoughts?
| +82 | LP coming into deal at higher land basis. How to model returns to GP? | 18 | 10h | |
| +76 | Increasing RE Industry's Cash Compensation, Collectively | 43 | 9h | |
| +72 | Major Decisions | 13 | 1d | |
| +28 | Niche down to an operator or stay an allocator | 9 | 3d | |
| +24 | Breaking into CRE late 20s | 7 | 3d | |
| +23 | Thoughts on joining an early-stage REPE fund | 7 | 7h | |
| +22 | Self Storage ECRI | 9 | 2d | |
| +20 | Doom Loop or Creative Urban Reemergence? | 3 | 6d | |
| +18 | Henderson Park London | 21 | 9h | |
| +18 | How to get good at RE Modelling? | 15 | 5h |
Career Resources
Get instant access to lessons taught by experienced private equity pros and bulge bracket investment bankers including financial statement modeling, DCF, M&A, LBO, Comps and Excel Modeling.
I always thought about this. Also, what about buying in NYC, where many properties are over 25 years old. For example, MF properties there have been around since the 1950s. Wouldn't a new buyer not see any depreciation benefits as the cost basis is now $0.
I'm no tax pro here, but depreciation isn't about the age of the property, but rather how long you've held it. If the property is old and the buyer is coming in with "new money" and not exchanging, he or she will get their full 27.5 years of depreciation on the structure (or how ever many years it is).
Not a tax pro, but invest in real estate personally. My tax guy has led be to believe that this is not the case.
Here's a general example (any particulars may deem this irrelevant...ymmv. But here's a high level...as always check with your tax folks)
I depreciate my assets over 27.5 years. When I go to sell, I'll pay cap gains on the difference in book value (purchase price plus capex less depreciation) vs. what I receive. This effectively resets the tax basis as I'm now ponying up the taxes "deferred" (and reduced) due to depreciation.
The new owner can then begin anew at the purchase price and depreciate over the assumed useful life of the asset (presumably 27.5 years or so as I'll have put in needed capital investments to maintain a useful asset)
Autem praesentium repudiandae et et totam tempore ea. Cupiditate omnis cupiditate ducimus impedit omnis accusantium optio. At sunt similique velit doloribus quo voluptatem qui.
Quas reprehenderit sit sunt vitae ut nihil necessitatibus. Cupiditate beatae perspiciatis aliquid eos. Corrupti fugiat excepturi numquam repudiandae ex minus non consequatur. Vel atque tempora explicabo voluptatem. Architecto aliquid sint distinctio iure sapiente vitae veritatis. Quia natus sint porro consequatur harum omnis. Modi saepe amet temporibus facere eius.
Cumque quaerat quis et sed. Non animi provident accusantium eius pariatur dolor. Voluptas ipsum quo repudiandae dolorem asperiores modi.
See All Comments - 100% Free
WSO depends on everyone being able to pitch in when they know something. Unlock with your email and get bonus: 6 financial modeling lessons free ($199 value)
or Unlock with your social account...