Author Topic: Stacked Single Family Home  (Read 660 times)

0 Members and 0 Guests are viewing this topic.

Offline BC_cheque

  • Full Member
  • ***
  • Posts: 1746
Re: Stacked Single Family Home
« Reply #15 on: March 24, 2018, 11:41:34 am »

Had a client who sold a rental property last year come in.

I worked out all the numbers and presented them with their tax bill for which they were shocked.

I reminded them that over the years I explained why they should NOT take CCA (tax depreciation) on the building  since they are only saving tax at 20%/25% rates on that deduction. If the property goes up in value and we need to recapture that CCA then it is possible that they will pay tax at 28 or even 31%. It was right there in my notes going back several years.  I know how to CMA.

[ETA: land is never depreciable, only the buildings/equipment are depreciable at set rates]

Sure enough, they sold one year prior to retirement, meaning they both had their employment income etc so they had to pay tax at the rate of 31%.

In the end it is only an extra $1,000 or so of tax and presumably they had the benefit of the tax savings over the years (which were squandered) so its not like a big deal.

So this idea of non-depreciating buildings is kinda funny. 

You're looking at it just from a tax-accountant point of view and leaving out a lot of other pertinent information.  Tax Shield alone doesn't give the full picture, you have to look at net annual casfhlows and appreciation of the asset as well.

So this idea of non-depreciating buildings is kinda funny. 

I'm pretty sure he was talking only about nominal rate of return.