Bought the Property? That Doesn’t Mean the Tax Clock Started Yet

[William Thompson]

I’ve been hearing this a lot lately:

“I closed on the rental, so I can start taking depreciation now, right?”

Not necessarily.

For tax purposes, the date you bought the property and the date it’s placed in service can be two different things.

If you close in August but spend the next three months rehabbing it, depreciation generally doesn’t start until the property is actually ready and available to rent. You don’t necessarily need a tenant in place, but the property needs to be ready for business.

That detail matters even more now with investors looking at cost segregation and 100% bonus depreciation.

I keep telling investors the same thing:

Closing gets you the property.
Placed in service gets the tax clock moving.

How many investors here track their placed-in-service date separately from their closing date?