Depreciation Tax Deduction – (Tax Deferral)

Part 2 of, "6 Tax Breaks Landlords Get that Hurt the Economy and You"

Get rid of the depreciation tax deduction for landlords because houses do NOT depreciate, they appreciate. It distorts the market for single-family houses and is a complete government giveaway to landlord owners that hurts live-in owners.

Essentially, the government is saying, “You landlord owners can pay us those taxes later, maybe.”

It’s like the government gives every landlord an interest-free loan every year but every year the landlord supposedly owes the government more money when the landlord eventually sells the house. 

The government doesn’t let the live-in owners next door put off paying some of their taxes indefinitely. 

Is that fair?

The first economic problem with the depreciation tax deduction is that it increases landlord cash profits every year which lets landlords pay more for houses so they bid up house prices for everyone. 

The second economic problem is that landlords are supposed to pay years of back taxes all at once when they sell a rental house. That means landlords make less money when they sell. That discourages landlords from selling their houses. That means less supply and higher house prices for everyone. 

So, the same tax break encourages landlords to buy single-family houses but it also discourages landlords from selling them. One tax break for landlord owners increases house prices for live-in owners two different ways. Genius!

Theoretically, since we currently have an annual deduction on (pretend) depreciation for landlords, couldn’t we have an annual tax on (real) appreciation for landlords? It’s the same logic but based on economic reality – houses appreciate, they don’t depreciate. And it would slow down house price increases two different ways.

Landlords aren’t the problem, they’re just playing by the rules of the game. Government tax rules, however, are a huge problem that lowers homeownership, economic growth, economic equality, and destabilizes family wealth creation.

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Here’s a great Twitter thread where a real estate investor talks about the depreciation deduction.

JTE Elms @jteelms

Great thread on real estate depreciation & how it helps investors avoid taxes. #realestate #personalfinance

Nick Huber @sweatystartup

A thread on how real estate investors, developers and operators can make millions a year and pay almost nothing in TAXES by using depreciation, bonus depreciation, and 1031 exchanges. A thread on how it works:

Next

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All

Part 1 – 6 Tax Breaks Landlords Get that Hurt the Economy and You

Part 2 – Depreciation Tax Deduction – (Tax Deferral)

Part 3 – 1031 Exchange – (Tax Deferral)

Part 4 – Mortgage Interest Tax Deduction – (Tax Reduction)

Part 5 – Tax-Free Landlord Profit – (Tax Deferral)

Part 6 – Taxes on Capital Gains are a Lot Lower Than Taxes on Ordinary Income – (Tax Reduction)

Part 7 – Stepped-Up Tax Basis – (Tax Reduction)

Part 8 – 6 Distortions of the Housing Market

Part 9 – 2 Sets of Rules for Single-Family Houses

Part 10 – Fixed Supply of Single-Family Houses

Part 11 - Houses for Homes, Not Tax Shelters

Part 12 - Solutions

Part 13 - Permanently Increase Economic Growth

Part 14 - Life is Crazy Enough

Part 15 - The Hardest Part

Part 16 - Distorted Back to Reality

Part 17 - Stop Distorting the Housing Market

Part 18 - Conclusion