Depreciation on a rental property

Forum|Forum|6 years ago
May 10, 2020
5 replies
22 views

I need help understanding how to depreciate a previous rental property

The property was a rental from 2015-2016 and than owner occupied until 3/3/2019. It is now a rental again.

Do I continue the old depreciation schedule? The owner add a downstairs unit and ungraded the kitchen since than and the property is now worth $2.2MM instead of the original $605K

ProSeries Professional

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Best answer by TaxGuyBill

@grnize wrote:
Do I continue the old depreciation schedule?

No, you start it anew using the 2019 "placed in service" date. Use the lower of (1) Adjusted Basis (including adding the improvement and subtracting the prior depreciation) or (2) the Fair Market Value when it was re-converted to a rental.

T

TaxGuyBillAnswer

@grnize wrote:
Do I continue the old depreciation schedule?

No, you start it anew using the 2019 "placed in service" date. Use the lower of (1) Adjusted Basis (including adding the improvement and subtracting the prior depreciation) or (2) the Fair Market Value when it was re-converted to a rental.

BobKamman

Level 15

@TaxGuyBill

I don't agree or disagree with that, I just think it's an interesting question and I can't find any example of it being definitely resolved. It might depend on the definition of "disposition" in Treas Reg §1.168(i)-4(c). I came across that reference in a 2017 discussion from "TaxProTalk," here:

https://www.taxprotalk.com/forums/viewtopic.php?f=10&t=9359

Where the moderator Frankly may have a point.

If changing it from personal to business is a "disposition" for these purposes, then the previous depreciation would have to be recaptured and not subtracted from basis. I have seen stranger results. But maybe this is more like a vacation home, where some years it is rented 14 days and others 15 or more. What do you do there (especially if the FMV is declining)?

I hope to never get this question, but my instinct would be to continue the earlier depreciation for the original building, then depreciate the improvements with a 2019 start date. I would be open to suggestions, though, about why that is wrong.

T

TaxGuyBill

@BobKamman wrote:
If changing it from personal to business is a "disposition" for these purposes, then the previous depreciation would have to be recaptured and not subtracted from basis.

I don't understand what you are saying in that sentence. And I *think* you reversed the "personal" and "business", or is that part of what I'm not understanding in that sentence?

@BobKamman wrote:
my instinct would be to continue the earlier depreciation for the original building, then depreciate the improvements with a 2019 start date.

Although I understand that thought process, it seems contradictory to that Regulation. If something has been disposed of, logic dictates it would be treated as a new item when used for business again.

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