Reply to Is renting a place out worth it considering the Depreciation Recapture Tax?

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[quote=Anonymous][quote=Anonymous][quote=Anonymous]Also, 22:40, what do you mean when you use the word, 'basis?'  [/quote]

Your "basis" is the amount of your investment, and is used to calculate your profit.  If the property is an investment property, you can deduct depreciation as an expense, but it reduces the amount of your basis.  So if you paid $100,000 for the house, and you've deducted $50,000 in depreciation from income from the property over the years, your basis is $50,000 (assuming you haven't invested in any improvements to the property).  If you sell it for $200,000, you pay capitol gains tax (assuming the investment otherwise qualifies) on $150,000 in profit.  The real bummer on rental property is that, even if you haven't made a profit against which you can deduct the depreciation, you still have to lower the basis to reflect depreciation, so you owe more in tax when you sell.  On the house you have as your residence, your basis is what you paid, plus the value of any improvements you've added over the years, on top of which you get to exclude $500,000 -- last time I checked -- in profit from tax altogether.  I understand why they are promoting home ownership, but I don't understand why they want to actively discourage renting. [/quote]

Sorry -- before the spelling police get me -- that's "capital gains tax."[/quote]

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