Rental property depreciation can be very beneficial, but when you’re selling the property, it can be a bit tricky. Here’s an example to make it a bit easier to understand.
If your cost basis is $200,000 and your total depreciation is $25,000, the IRS will calculate the capital gains based on $175,000. If you end up selling the property for $250,000, the IRS calculates the capital gain tax with a profit of $75,000 instead of $50,000. This is called depreciation recapture.