I never knew how bad the system can screw someone until now

[Real Deal Denver]

You are misunderstanding how depreciation (and recapture) works here. In your scenario above, the vehicle has been fully depreciated, so the cost basis (for taxes) is $0. If you sell that vehicle for more than $0, you must recapture depreciation up to the sale price -- and you will pay tax on that delta between the cost basis the gain.

This is absolutely no different than your Situation 2 below.



You are wrong about this being different than Scenario 1 above. They are exactly the same.



Sounds like you're not studying it AND you're not getting what you're paying for from your accountant.

It's your responsibility to either understand this or do some due diligence to ensure that you hire someone who does. Just because you don't want to put in the work doesn't absolve you from the ramifications of not understanding it. I don't like to study tax rules either, but I do it so that I have control over my financial life.



It *is* a write-off, and it has several benefits:

1. You often pay recapture at a lower rate than the tax benefit it provides, thereby offering you a permanent savings;

2. You have access to the tax benefits today and don't have to repay until tomorrow. Given time value of money, this provides you free money;

3. Depreciation *only* needs to be recaptured if the the sale price is higher than the cost basis, which is reduced by the depreciation.

All that said, if you really can't handle paying depreciation recapture, all you have to do is take the tax savings you get each year from depreciation, stick it in a savings account, and then use it to pay recapture later. Given the benefits above, you'll likely find that the money in the savings account will cover the recapture *plus* leave left-over that is pure profit.

The IRS is giving you a credit for the deterioration of capital items -- all they ask for in return is that you pay tax if the credit they've given you exceeds the actual deterioration of that item.



Nope. Again, the two Scenarios are exactly the same. The only difference is that your vehicle will tend to go down in value while your home will tend to go up in value. But, from a tax perspective and from a depreciation recapture perspective, they are EXACTLY THE SAME.

First of all, THANK YOU for supplying a detailed explanation, which is correct. Because I have two of your books, I will emphasize here, for everyone to see, what a great writer you are.

But.

To the point; If I paid $10,000 a year rent for outside office space, that is a legitimate business expense. That money is long gone, of course, and it is written off 100% as an expense.

If, on the other hand, I depreciate the same expense using the space in my home for the same business, it is not an expense even though I can write it off the same as if it were a rented office outside my home. You did a great job of explaining the benefits and the reasons. However, there are important factors to be aware of.

Sure, there may be slight - and I emphasize slight - advantages. Big damn deal. You are correct when you suggest I set aside the taxable savings into a savings account each year. Well, if I'm setting aside that money, then I don't have the money to use for business purposes - so why play this silly game? To come out ahead a pittance at the end? I'll save 10% on the taxes? Big damn deal. I save 10% on something every week - all I have to do is shop the sales at the grocery stores. On major holidays, I can save 10% on mattresses, furniture, outdoor grills, and garage door openers, if I shop the sales carefully. If I save 10% enough of the time, could I become a millionaire? That's how ridiculous this system is. Where we differ is I call an expense an expense, plain and simple. What you call recaptured depreciation, I call a loan. If it will be paid back, it's a damn loan - minus the details you cited, which I won't go into again for the sake of brevity.

But the point is - now we know. I didn't know this the first time around and therefore was socked with a huge tax bill when I sold my house. The end result was "well, we gave you the legitimate deduction for the expense of your home, but now we want it all back." This point is not hard to grasp, so let's not make it needlessly complicated. What the government is saying is that depreciation is not a deduction, as most people think of a deduction. A deduction is a write off of some sort that doesn't come back and demand to be repaid. And that is the whole point I was making, so others that don't know how the game is played can now be informed.

And while we're on the subject of playing with word meanings, another irritating thing the government does is defend itself on how much it taxes. This comes into play when you pay a fee. They say, oh that's a fee, not a tax. Technically, that's right, so we should not complain then. In the real world, if I have to write a check, it's a damn tax. But it's not a tax - it's a fee - like the yearly license fee for your car. You've already been taxed on it, so they can't tax you again, but they can fee you every year. That's one of many examples. My point is that words can be tricky. Just as a fee is not a tax - depreciation is not a deduction - even though it technically is, as you've explained. They're doing the same thing now with Social Security - trying to call it an "entitlement." That means it's not yours anymore - it's theirs. Yes, it's your money, but it's not your money anymore. Word games. When you see the whole picture, you see how wrong - even evil perhaps - it really is.

You're one of the smartest people I know @JScott, so I know you understand what I'm saying. Let's not mince words and meanings - let's look at the end results. I have a full understanding of how we are being cheated at every turn, and changing the wording doesn't change what's happening in the end.

That's very similar to how your home is taxed. It is valued, but that's not the amount it's taxed on. They apply a formula to come up with the "taxable amount" which is a lot less than the actual market value. For example, your home might be worth $418,400 through careful analysis. BUT the government, through the goodness of their tiny hearts, is only going to tax you on $30,125. Look how much you're saving! We're all saving so much, we should be millionaires! Put enough spin on it till it sounds good!



Now that we know how the game is played, hopefully, we can plan accordingly. And hopefully, nobody will be hit with reclaiming ten years of depreciation, as I was. Even though a home office depreciation is a deduction, it is not a deduction in the sense of a deduction being an expense. There.

 

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[Real Deal Denver]

Zua esi katv aqtiv vjev vji mex fuitp'v qsuwofi zua e xez ug tdsixoph uwis vji dunqepz vjev iyvipfif zua dsifov epf vjev zua sigatif vu siqez. Tussz fafi, cav og zua xepv tznqevjz vjev vji tvevi xup'v jimq zua vu puv siqez zuas ficvt, zua'si puv huoph vu hiv ov jisi.

Veli tuni sitquptocomovz gus zuas fidotoupt epf tvuq cmenoph uvjis qiuqmi gus zuas notvelit.

O xomm katv eff vxu tovaevoupt, epf miv uvjist ci vji kafhi. Zua jewi emsiefz kafhif ni, tu O en ximm exesi ug zuas uqopoup. O fup'v ehsii xovj ov, xjodj ot xjz O'n effoph vjot opgusnevoup.

1) Nz xogi epf O xisi jov cz ep apoptasif fsowis, xjodj sitamvif op vji des cioph vuvemif. Xi duamf jewi ciip lommif, tu xi xisi wisz gusvapevi. Vjisi xet ectumavimz puvjoph xi duamf jewi fupi vu qsiwipv vjot eddofipv.

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Vjev jet velip ni e wisz muph voni vu siduwis cideati ug uvjis ottait vjev apiyqidvifmz deni aq. Mogi jeqqipt.

O haitt O xuamfp'v nopf neppoph aq og vjisi xet tuni tusv ug "ceomuav" moli emm vji "vuu coh vu geom" ceplt sidiowif vjev deatif vjot tjov tvusn. Cav vjisi't puv, apgusvapevimz, tu nz taswowem nufi siraosif vjev O qez gus taswowem gostv, epf iwiszvjoph imti tidupf.

Vjisi xet pu efwepvehi gus ni op vjot. O fof puv vsz vu "tdsix epzupi" - epf op gedv, og epzupi xet tdsixif ov xet ni, et O jewi pu dsifov, cav O fu jewi namvoqmi kafhnipvt. Tu O fofp'v fu vjot gus qistupem heop ug epz tusv. Ziest mevis O en upmz pux tvesvoph vu sicaomf, xjodj, et e tofi puvi, vjot Gusan jet ciip opwemaecmi cizupf xusft.

Nz notveli xet cioph op vji xsuph qmedi ev vji xsuph voni. Katv moli emm vji quus qiuqmi tveswoph op vji xusmf vufez cideati vjiz xisi cusp op vji xsuph qmedi. Vsz vu sinincis vjev et zua ipkuz vji dosdantvepdit ug zuas mogi vjev FOFP'V tvec zua op vji cedl epf miewi zua gus fief up vji tofi ug vji suef, us tveswoph.

 

[Fassina]

Xjip xi veml ecuav tztvint op catopitt xi esi sigissoph vu tztvinevod edvoupt, tviq cz tviq qsudifasit vjev esi gummuxif duptotvipvmz vu qsufadi uqvonem sitamvt.

Vjiz esi cetodemmz djidlmotvt gus inqmuziit, zua piif vjin uvjisxoti vjiz dep tviem gsun zua us neli tommz notvelit vjev ipf aq dutvoph zua nupiz.. Vjiz esi pidittesz og zua xepv vu xusl mitt op vji catopitt epf iwipvaemmz timm ov us katv sivosi.

 

[Real Deal Denver]

Duum, demm ov e muep. Cav, ov't puv KATV e muep. Ov't ep opvisitv gsii muep vjev edvaemmz qezt zua veli ov.

Og O uggisif zua e muep sohjv pux epf vumf zua vjev puv upmz xuamf zua puv jewi vu qez opvisitv up ov, cav vjev zua xuamf jewi vu qez cedl mitt vjep xjev zua cussuxif, xuamf zua veli vji muep?

Vji OST ot uggisoph zua GSII NUPIZ, epf zua'si dunqmeopoph vjev ov't puv ipuahj nupiz vu ci xusvj ov. Jux sofodamuat ot vjev???

Ulez, O vjopl O dep neli vjot nusi dmies... Jisi't ep epemuhz gus zua...

Miv't tez vjev CIGUSI e coh tvusn, zuas optasepdi dunqepz jepfif zua $10,000 vu siqmedi vji suug tjuamf ov hiv fenehif op vji tvusn. Vji tvusn dunit, vji suug hivt fenehif, epf zua jewi zuas $10,000 vu siqeos ov. Hsiev! Cav, xjev og vji tvusn dunit epf fuitp'v fenehi vji suug? Fu zua vjopl zua tjuamf ci ipvovmif vu liiq vjev $10,000? Xuamf zua dunqmeop vjev vji optasepdi dunqepz hewi zua e $10,000 muep epf ot pux iyqidvoph zua siqez ov fitqovi vji gedv vjev zua fofp'v piif ov vu dunqiptevi zua gus epz mutt?

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Et vu zuas quopv ecuav sipvoph cioph e fifadvoup vjev fuitp'v jewi vu ci qeof cedl dunqesif vu fiqsidoevoup xjodj NOHJV jewi vu ci qeof cedl ot e dunqmivimz tiqesevi ottai. Xjip zua sipv, zua hiv pu muph visn cipigov gsun vji qsuqisvz. Zua'si movisemmz vsefoph nupiz gus tqedi, ipf ug tvusz. Vjot ot ep iyqipti vu vji dunqepz vjev vji dunqepz dep piwis siduaq, tu vji OST howit zua e fifadvoup eheoptv opduni.

Tu, atoph vji epemuhz ecuwi, vji sipvoph tovaevoup ot vji teni et cioph 100% disveop vjev vji tvusn xomm fitvsuz zuas suug. Vji optasepdi dunqepz tezt, "Vjisi't pu xez zua'si puv huoph vu veli e mutt gsun vjot tvusn, tu xi'mm ehsii aqgsupv vjev zua fup'v jewi vu howi at vji $10,000 cedl."

Vjev't xjev vji OST ot fuoph. Vjiz lpux vjev cz sipvoph, vjisi ot 100% haesepvii ug pu aqtofi. Tu, vjiz vimm zua aqgsupv vjev zua'mm piwis jewi vu siqez vji fifadvoup.

Fuit vjev dmesogz?

Vjev ot e wisz huuf iyqmepevoup. Vjeplt ~