Conversion of Owner-Occupied Duplex to 100% Rental- Handling Depreciation, Basis, Improvements?
I have been a follower of the Bigger Pockets blog for quite a while, but this is my first forum posting. Thanks in advance for the help from all you experts out there! I'll try to keep this concise:
We bought a duplex in 2014 and are living in one unit and renting out the other. I am thinking into the future (we wont be living here forever) and am wondering how depreciation, etc. will be handled when we convert to 100% rental use. Here's a concrete example:
We are planning to have gutters installed. Currently there are no gutters on the house, which is contributing to some water in the basement. My thoughts are that this could be considered a repair OR an improvement, depending on how you look at it... If we treat the gutters as a repair, and say they are $2,000, we would deduct $1,000 (50%) as a repair for the rental unit and do nothing with the other $1,000. Once we move out and convert to 100% rental, we could take the current market value of "our half" of the gutters and add that to the basis of the house, half of the gutters would then be considered an improvement and would be depreciated over 27.5 yrs. with the house. Is this thinking correct?
The other option I have considered is treating the gutters as an improvement and depreciating 50% of the cost starting in year 1. Once we move out and convert our unit to a rental, we would up the "business use" % to 100% until the gutters are fully depreciated. In this case we would "lose out" on the depreciation of the gutters during the years that we are living in the house, so we could optimize by depreciating using a straight-line method instead of a 200% declining balance (or similar). Does this line of thinking make sense?
Sorry for the lengthy post! Thanks for the help,
Lisa