• incentives from your state or locality to invest in lower- income areas
You’re also required to take a deduction for depreciation. Just know that when you sell a rental property, you’re subject to depreciation recapture. Any gain that has to do with depreciation is taxed at 25% (as opposed to 20% for regular capital gain). The depreciation-related gain is also called unrecaptured section 1250 gain. One way to mitigate this is to always keep track of passive activity losses. While they may not be deductible while you own the property, they are when you sell it, which means the amount you’ll owe will be less. By the way, if you’re thinking, “Well, I just won’t claim depreciation, then,” I’m sorry to tell you that this simply won’t work. The IRS states that the recapture’s calculation is based on “allowed or allowable” depreciation, meaning that even if you didn’t claim it, you’ll still have to pay it. You might as well get the deduction while you can, and perhaps consider setting it aside for when you do end up selling the property.
ALL ABOUT CREDIT SCORES
As I briefly mentioned, credit scores can play an important role in getting financing and the rates you’ll need to pay. I want to talk in detail about what makes up a credit score so you’ll know what you need to do, should you want to improve it. First, your score is a number that tells lenders how likely you are to pay back the money. When you have a higher score, you get better rates, which leads to long-term savings and more money in your pocket. Credit scores are often based on the FICO scoring model. They 17
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