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Is the tenant more to blame? Possibly. But let's not pretend the owner is a complete innocent here.
Nice MBP and iPhone 15 pro you got there, would be a real shame if someone stole it.
As someone who once was a small business owner, I was always way more afraid of rich scammer clients than of the poor ones. The rich when they feel entitled to take what is yours, are far more brazen, well equipped to explore the laws to do so, and completely shameless.
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That’s what makes the story noteworthy. Somehow a person can do this and NOT go straight to jail 450 days ago for trespassing
But having someone so clearly misuse laws meant to protect vulnerable persons, should not evoke sympathy. She should be thrown out of the place quite literally.
For instance? Do you get to deduct your whole mortgage or something?
Depreciation is the non-cash expense. It's not exactly as simple as this, but you can depreciate a residential building at 1/27.5 per year and commercial at 1/39 per year. That means if you buy a property for $1.5M where the land is worth $418K and the building $1072K, if it's residential, you'll get a reduction of income of $39K/yr if it's residential and $27.5K/yr if it's commercial. That of course decreases your basis in the property by the same amount (making it a timing preference, not a permanent preference).
In your personal life*, your roof gradually wears out. You buy a place and, at some point in the future, you have to replace the roof. If you sell a house with a 30 year old roof, you get paid less for the property than if it had a 30 day old roof on it.
If that roof was on a piece of incoming-generating property, it would seem wrong to say "for 24 years, the roof was perfect and then in the 25th year, it degraded all at once, needing replacement". If you sell the building halfway through the roof's expected life, it seems wrong that you got paid less for the building (because the buyer knows the roof is ~50%) but that you get no credit for that loss in value while it was happening.
Same for Maersk: if they had a freshly commissioned ship and a 20 year old ship with the same original specs, the new one is worth more money to a buyer.
So, the tax system says "for business-use property, we allow depreciation to model that things wear out and become worth less money over time". This is true for your rental house, an airplane, a ship, a laptop, a desk, a chair, etc.
If you have a roof (on a 27.5 year depreciation schedule) that you manage to get 40 years out of, you get to deduct the value of the roof over the first 27.5 years and then get no deduction for the last 12.5 years because your basis in the roof is zero. Likewise, if you only get 20 years and a day out of it, you depreciate it at 1/27.5/yr for the first 20 years and then take all the remaining basis as a deduction on the day you replace it.
* - where house repairs are not deductible, because they're a personal consumption expense.
For example a residential property depracated entirely for 1/27.5 its value every year for 27.5 years, but still being rented out after that period. Presumably it can no longer be deducted from tax, but the accounting idea is that the house has degraded to being worthless but is demonstrably not?
What would I do if someone tasked me to sit down and try to write a universally applicable tax code that closed that "loophole" without introducing a bunch of other waste/complexity/cost of compliance?
I'd probably wrestle with it a while and then say "screw it; let it go to zero; we're going to recapture it upon sale anyway, so given the projected/hopeful lifespan of the government versus the taxpayer, it doesn't really matter; we'll eventually get our money."
So in your example, if you depreciated the building to $0 and then sold the property for $3M you'd pay capital gains taxes on $2.5M.
Unless you die.. then I'm pretty sure your heirs inherit it with $0 tax at a stepped up basis of $3M? But I'm not sure on that one.
It's also worth noting that if depreciation was allowable and you didn't take it, it still decreases the basis.
Your basis is reduced by depreciation deductions allowed or allowable.
https://www.irs.gov/publications/p551#idm140622807378608
If you don't want to take depreciation (for whatever reason), you need to change the facts and circumstances such that depreciation would not be allowable under the facts.
She has a lawyer, she is living in a high value house. She seems to be an entitled bitch.
You can be entitled and be a hacker. You could argue every single billionaire "hacks" economic systems to achieve their goals. You think none of them are entitled?
No, she's saying that a clever use of loopholes doesn't exclude you from being an asshole.
You seem to have a very loose definition of what a "hacker mindset" is than most people: "the ability to find alternative ways to achieve their goals, bypassing bottlenecks and hurdles and thinking outside the box."
This is someone taking that concept to the extent of criminal behavior.