How does rent work with regard to capital costs?

For example, let's say I build a storage facility on my property and it costs me $100,000 to build it. I rent it out for $1000 per month. Can I then deduct the rent I receive for the storage facility against the original capital cost, or is the rent considered income to me which cannot be offset?


Assuming US based on prior questions, will delete if not.

In the US, rent is considered income and you'd offset that income with expenses related to operating the rental, things like insurance, maintenance/repairs, and depreciation of the structure. Depending on the building's classification it will likely be depreciated for 25-39 years. If it were 25 years that means 4,000/year in depreciation expense, so you'd have 8,000 in rental income less any other expenses for the year.

The flip-side of this is that if you were to sell the storage facility you'd pay capital gains tax based on the adjusted basis, so if it was a 25-year structure and you sold it after 5 years, you'd have claimed $20k in depreciation expense, if you sell for $120k, you'll have $40k that is subject to capital gains tax, barring any other factors that would adjust the basis.

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You have it backwards. Costs are deducted from income, not income from costs.

Suppose you buy a piece of land for $200,000. You then spend $100,000 building a storage facility. You now have a total of $300,000 in expenses.

You then rent the facility out, getting $12,000 a year. This is gross income. Depending on the situation, there are various deductions you can make from that. For instance, if you got a mortgage to buy the property, you can deduct interest. You can also claim depreciation from the $100,000. This then decreases your cost basis; you can't deduct something twice, so if you deduct depreciation from your income, you can't deduct it again.

So suppose after a few years, you've deducted $40,000 in depreciation. In other words, you've deducted a total of $40,000 from your income over the years you've owned the property.

Suppose you sell the property for $400,000. You have $400,000 in income from the sale. You can deduct your original purchase price of $200,000. You can also deduct the cost of building the facility, but you've already claimed $40,000 of that, leaving $60,000. So your total cost basis (that is, what you can deduct from the sale price) is $260,000, leaving you with $140,000 in profit to pay taxes on.

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