Help me understand real estate depreciation
March 14, 2015 1:02 PM Subscribe
I realized this year I have been neglecting depreciation on my taxes. I bought my condo in 2006, and lived there until 2012. Moved out at the end of June, started renting it out in November 2012. How do I calculate depreciation for my taxes? I know you are supposed to divide costs by 27.5 years, but I have questions.
I bought the condo for $Y in 2006, but by the time I moved out in 2012, the real estate market had dropped, so as I could not sell for what I needed (about .75*Y), I switched to renting it out, putting it on the rental market in October, and got a tenant in November. Do I start my depreciation based on the condo cost in 2006, or the value in 2012? Should I look into amending my 2013 and 2012 tax returns?
I bought the condo for $Y in 2006, but by the time I moved out in 2012, the real estate market had dropped, so as I could not sell for what I needed (about .75*Y), I switched to renting it out, putting it on the rental market in October, and got a tenant in November. Do I start my depreciation based on the condo cost in 2006, or the value in 2012? Should I look into amending my 2013 and 2012 tax returns?
IIRC the depreciable base is lesser of adjusted cost basis or FMV at the time the property is converted to rental use.
posted by jpe at 6:50 PM on March 14, 2015
posted by jpe at 6:50 PM on March 14, 2015
Best answer: Pub 527:
When you change property you held for personal use to rental use (for example, you rent your former home), the basis for depreciation will be the lesser of fair market value or adjusted basis on the date of conversion.
http://www.irs.gov/publications/p527/ch04.html
posted by jpe at 6:51 PM on March 14, 2015 [1 favorite]
When you change property you held for personal use to rental use (for example, you rent your former home), the basis for depreciation will be the lesser of fair market value or adjusted basis on the date of conversion.
http://www.irs.gov/publications/p527/ch04.html
posted by jpe at 6:51 PM on March 14, 2015 [1 favorite]
Best answer: Hire an accountant to do your taxes. It will be worth it. 2012 and 2013 will need to be amended to do the depreciation, but as I understand it there is a new Safe Harbor law for 2014 which can replace depreciation. IANACPA.
posted by rabbitrabbit at 9:59 PM on March 14, 2015
posted by rabbitrabbit at 9:59 PM on March 14, 2015
This thread is closed to new comments.
Start depreciating when you first put it into service. Yes amend, you will be paying capital gains on that depreciation when you sell so you really want to take advantage of setting the depreciation expense against the rent. (As far as IRIS is concerned it is depreciating whether you claim it or not.)
posted by Pembquist at 2:02 PM on March 14, 2015