My question is: Canadian-specific QUESTION: I've read about the advantages of using depreciation to lower taxes but I understand you get hit hard with taxes when you sell because of the bigger difference between the depreciated price and the selling price. As a real estate investor, how should I use depreciation? If I'm sure I'll hold the property, should I start using depreciation? If I know I'm going to sell soon, should I not use depreciation? What if I haven't decided what to do yet? Thank you. --------------------------------------------------------------------------- david ingram replies: If you would buy an RRSP or an IRA, you should use depreciation when you can and it is available. However, a short term depreciation can work against you. For instance, you can only use depreciation on rental property to offset taxable profit. You could own a rental building for 10 years, never ever make a profit and not claim depreciation until the 10th year when a generally low overall taxable income has you in a 30% tax bracket and $1,000 of depreciation would get you back the grand sum of $300. Then you sell the property the next year for a $300,000 capital gain and have to pay tax on your regular income, the taxable $150,000 of the capital gain (1/2 of the gain) and the $1,000 depreciation claimed the year before. In this case you would be adding the $1,000 back at a 44% tax bracket and paying $440 tax back for the $300 refund received the year before. However, I have picked an extreme case. If your marginal tax bracket was 44% anyway, you would always claim depreciation because you will be paying it back at the same or a lower rate. And in general I usually tell people to claim it when they can. If you save $1,000 in tax today and don't have to pay it back for ten years it is almost always has to be to your benefit. Each situation is likely different but I hope this helps. This is the Canadian answer. The US insists that depreciation be claimed and recapture is calculated on the depreciation that was "allowable" even if you did not actually get it. The Canadian system is much easier. And just to keep the answer straight, depreciation is an American term. Canada's term is officially "capital cost allowance" otherwise known as CCA. Answers to this and other similar questions can be obtained free on Air every Sunday morning. Every Sunday at 9:00 AM on 600AM in Vancouver, I, david ingram am a permanent guest on Fred Snyder of Dundee Wealth Managers' LIVE talk show called "ITS YOUR MONEY" Those outside of the Lower Mainland will be able to listen on the internet at www.600AM.com <http://www.600am.com/> Call (604) 280-0600 to have your question answered. BC listeners can also call 1-866-778-0600. Callers to the show and questioners on this board can also attend the Thursday Night seminars on finance and making your Canadian Mortgage Interest deductible. David Ingram's US/Canada Services US / Canada / Mexico tax, Immigration and working Visa Specialists US / Canada Real Estate Specialists Home office at: 4466 Prospect Road North Vancouver, BC, CANADA, V7N 3L7 Cell (604) 657-8451 - (604) 980-0321 Fax (604) 980-0325 Calls welcomed from 9 AM to 9 PM 7 days a week (please do not fax or phone outside of those hours as this is a home office) email to taxman at centa.com <mailto:taxman at centa.com> www.centa.com <http://www.centa.com/> www.david-ingram.com <http://www.david-ingram.com/> Disclaimer: This question has been answered without detailed information or consultation and is to be regarded only as general comment. Nothing in this message is or should be construed as advice in any particular circumstances. 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