I am having some issues figuring out to calculate how depreciation affects my tax for a rental property. I have an example below. Is it correctly calculated correctly?
- Purchase price:
- Land Value:
- Year 1 interest paid:
- Year 1 principal paid:
- Yearly property tax:
- Annual expenses:
$6,200(Insurance, utilities, gardener, and so on)
- Tax rate:
- The annual rent income is
The house value is
$750,000 (purchase price - land value) +
$100,000 in rehab (all just calculated as 27.5 to make it easier), depreciated over 27.5 years is
$30,909 a year.
If we calculate our year's profit
$129,600 (rent income) + $23,029 (principal) - $6,200 (annual expenses) - $18,750 (property tax) - $41,632 (interest paid) = $86,047
My depreciation is
$30,909 a year, I can subtract that from my taxable income.
$86,047 - $30,909 = $55,138
I am then taxed on the
$55,138 at 25% making this year's tax
That would mean my annual profit is
$86,047 - $13,784.5 = $72,262.5 and cash flow
$72,262.5 - $23,029 = $49,233.5
Is this correct so far?
Let's say that I hold the property for 10 years and sell it for
$1,950,000., meaning that I increase the value of the property by
$450,000. And the land value was
50% meaning that the building has increased the value by
How do I calculate how the depreciation recapture is taken at this sale?