Rental property tax question
For the accountants of CP, I was hoping to get an opinion on this scenario.
Doing my taxes today and the lady offered me two scenarios for paying tax on my rental
The first was to pay it as i normally have, just paying the percentage of principal paid plus profit in my normal tax bracket like always.
The second was one i have never heard before
Depreciate it on a given percentage based on the length of my mortgage which would allow me to write that amount off each year.
In the first scenario i pay about $600 and the second i receive a $1600 refund added to my return. However fifty percent of the portion that was written off now incurs capital gains taxes in the event i sell. So in the future if i sell my property, i would pay capital gains taxes on fifty percent of the profit over what i bought it for and fifty percent of the portion written off which would be paid at my yearly tax rate. This could be a huge tax bill offset by a yearly swing in actual taxes paid on the rental so in the long term profitable.
But then i was told that if i move back into the rental before i sell for a period of time, the rental reverts to being my primary property and the previous percentage of the house written off no longer applies thus saving a massive chunk of money. This could easily end up in the mid 5 figures if i kept the property until the end of the mortgage. Everyone in the office seemed to agree this was true but when i asked to see an actual rule in the tax code anywhere that confirms this, or that even sets a period of time where you would have to live in the property, no one was able to produce anything. I just cant believe that the government would let me walk away from taxes owing. So is this to good to be true or is this a real thing with rentals in general?
Obligatory no i don't know what a write off is, but they do and they're the ones writing it off
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