Originally Posted by
sailingfun
As long as they can as a couple meet the test for active participation in the business they will have no issues with the IRS. Those running into audit problems usually are actually passively involved and can't use the depreciation against other income like Delta earnings. Depreciation does however have to be recaptured at some point. Lots of ways to delay that but the bill does come due.
It may be a lower bill when it finally does come due. For simplicity sake assume a taxpayer took 100,000 in depreciation deductions, resulting in a 37,000 tax savings. The bill for depreciation recapture is 25,000. In the meantime the taxpayer has use of 37,000 for other investments. Executing a 1031 or 721 exchange kicks the can further down the road.