Does the IRS require one to depreciate investment properties?

Does the IRS require one to depreciate investment properties? I see no reason to depreciate rentals here in Southern California, since the primary reason I invest in them is for appreciation, with the rental income and tax deductions for interest and related expenses being distant secondary reasons.

Sorry, but you don't have a choice in the matter. Failure to do so will cost you a lot in the end. Depreciation is an annual deduction, representing a method for recovering your investment's cost. Depreciation is calculated on the portion of your investment that represents the cost of the building. No depreciation is allowed on the land costs of the rental property. A reasonable allocation should be made between the two. While you won't have the IRS sending you letters telling you to take the deduction, you will see the consequences when you sell.

Recapture occurs on the sale of the property. Recapture occurs even on amounts that you failed to claim on the property. The maximum amount of recapture is the amount of depreciation claimed or the amount that should have been claimed.

Recapture can be less if the selling price is less than the original cost of the property. The selling price allocated to the building might be less than the original cost if the building was destroyed or if it will be demolished in the sale. Depreciation recapture is taxed at a maximum rate of 25%, but can be less, depending on your level of income. Any gain beyond the original cost of the building is taxed at the maximum rate applicable to long-term capital gains, which is currently 15%.