馃攳
What is Rental Property Depreciation? | Investing for Beginners - YouTube
Channel: unknown
[0]
what is depreciation for real estate
[2]
investing that's today's video let's
[4]
dive in hey there I'm Clayton Morris I'm
[10]
the founder of Morris invest we're one
[12]
of the largest turnkey rental providers
[14]
in the country and today we're going to
[15]
talk about depreciation one of the all
[18]
important reasons we even invest in real
[20]
estate in the first place it's something
[22]
that's so powerful that lets us keep
[25]
more of our money in our pockets than
[27]
sending it off to the federal government
[28]
come tax time so let's put this
[31]
definition up on the screen what is
[33]
depreciation well it's simply the
[35]
reduction in the value of an asset over
[37]
time due to wear and tear well they
[41]
government recognizes that things fall
[43]
apart and you have a great rental
[45]
property you've rehabbed it in 27.5
[49]
years those are the years I don't know
[50]
why they put that half in there but
[52]
that's what the government allows that
[53]
overtime 27.5 years they believe that
[57]
that property will basically fall to
[59]
ruin which doesn't happen because we
[62]
actually don't lose the value of a home
[64]
really I mean when you compare it to the
[65]
stock market a stock can go down to zero
[67]
but rental property never ever goes to
[71]
zero sure in a down economy might see a
[73]
little bit of a dip in property value
[75]
but over the long term you're not going
[77]
to see it ever go down to zero is
[79]
frankly impossible so twenty seven point
[82]
five years is the amount of time that
[84]
the federal government says your
[86]
property will deteriorate now what's
[88]
great is that every year for twenty
[90]
seven point five years you get to claim
[92]
on your taxes the depreciation of that
[96]
property to offset your rental income so
[99]
let me give you a specific scenario
[101]
right let's say the value of the home
[103]
that you purchased was fifty thousand
[105]
dollars the appraised value about 50
[107]
thousand dollars okay now what you need
[109]
to do is divide that value by the twenty
[113]
seven point five years and you arrive at
[115]
eighteen hundred and eighteen dollars
[118]
simple eighteen hundred and eighteen
[120]
dollars is what you would get to claim
[122]
on your taxes every year as the
[124]
depreciation value for that house in
[126]
general terms now what does that mean
[130]
well eighteen hundred dollars comes off
[132]
of your own
[133]
all tax burden so now if you if your
[136]
rent every year on that property is
[138]
$5,000 a year let's say that property
[141]
brings you $5,000 a year in rental
[143]
income now I get to offset that by
[145]
eighteen hundred and eighteen dollars so
[147]
five thousand minus the eighteen hundred
[149]
and that's what I would pay taxes on not
[152]
the full five thousand makes sense it's
[155]
a fantastic way to mitigate your overall
[157]
tax burden one caveat here is that the
[160]
land that the house sits on is not
[163]
depreciable so you cannot depreciate the
[165]
land value so I've gotten in arguments
[168]
before because I believe that rental
[170]
real estate is the number one way to
[172]
create passive income in this country
[174]
and there's no better way and
[176]
occasionally people will say to me what
[178]
about raw land what about owning raw
[180]
land and leasing it out to people who
[182]
want to put mobile homes on there or
[183]
billboards or things like that raw land
[185]
is another great investment strategy but
[188]
it is not as good as owning rental real
[191]
estate simply isn't because of these
[194]
very reasons that you cannot depreciate
[196]
land land doesn't lose its value
[199]
it simply has its value it's set by the
[202]
market and it's not going to you can't
[204]
depreciate it because it's going to fall
[206]
apart over 30 years it simply can't
[208]
happen a house a structure a car an
[211]
asset can fall apart so that is
[214]
depreciation at the basic level of
[216]
residential real estate now you could go
[219]
higher and more ninja by hiring a proper
[222]
accountant who can do what's known as a
[224]
cost segregation this is high-level
[227]
stuff folks and it's not for the faint
[229]
of heart
[230]
cost segregation in the new tax code
[233]
that came out I think about two years
[234]
ago what the IRS said when they change
[237]
the tax code is this that now we're not
[239]
just going to let you depreciate the
[241]
whole house we're actually going to let
[243]
you as a rental property owner or a real
[247]
estate investor we're gonna let you
[248]
depreciate certain pieces of the house
[252]
perhaps the roof needs to be depreciated
[255]
at a rate different from the cabinets or
[258]
the structure inside the house whatever
[261]
it happens to be the IRS was basically
[264]
saying by allowing what's called a cost
[266]
segregation
[267]
to break down these costs over multiple
[270]
items now it can only be done by hiring
[273]
a accountant who does cost segregations
[277]
you cannot do it on your own you
[278]
actually have to hire them to do it and
[280]
in some cases if you own many many
[282]
properties it could be very it could
[285]
definitely be worth your while if you
[287]
don't have many properties the cost of
[290]
hiring that accountant it might be
[292]
offset by the cost of the accountant
[294]
with how much you're actually going to
[296]
save by doing a cost segregation but if
[299]
you have many many properties that
[301]
accountant will actually fly into the
[303]
town where you own your properties spend
[305]
all day going through those assets and
[307]
breaking it down they have to be they
[310]
have to be licensed to do it you can't
[312]
do this on your own but that again is a
[314]
high level ninja trick when you are
[316]
ready to take things to the next level
[317]
it's worth having a discussion with your
[319]
accountant on whether or not you are
[322]
you're in a position to do a cost
[324]
segregation anyway that's a quick look
[327]
at depreciation I hope you have a good
[329]
understanding of why this is such a
[330]
powerful tool to help you keep more
[332]
money in your own pocket I'm Clayton
[335]
Morris thank you so much for subscribing
[336]
if you haven't already done so please
[338]
click the subscribe button right here
[339]
and we look forward to seeing you every
[342]
every day frankly we publish videos
[344]
constantly to try to make you a better
[346]
real estate investor thanks so much and
[349]
we'll see you back here next time
[350]
everyone go out there take action and
[352]
become a real estate investor
Most Recent Videos:
You can go back to the homepage right here: Homepage