Tax, SDIRAs & Cost Segregation

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Jerome Skinner
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Bonus Depreciation Question

Jerome Skinner
Posted Nov 19 2022, 06:13

Hey all! After listening to the last episode about bonus depreciation, it left me thinking about my home I recently converted form primary to rental. In the episode it was said that bonus depreciation had to be taken in the 1st year, but am I able to take it in the 1st year of conversion from primary to longterm rental property? Or does it have to be the 1st year of purchase?

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JD Martin
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JD Martin
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ModeratorReplied Nov 19 2022, 21:02
Quote from @Jerome Skinner:

Hey all! After listening to the last episode about bonus depreciation, it left me thinking about my home I recently converted form primary to rental. In the episode it was said that bonus depreciation had to be taken in the 1st year, but am I able to take it in the 1st year of conversion from primary to longterm rental property? Or does it have to be the 1st year of purchase?


 I believe it is the first year the property went into service; just as depreciation starts when you place it into service, not when you initially bought the property. 

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Yonah Weiss
  • Cost Segregation Expert and Investor
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Yonah Weiss
  • Cost Segregation Expert and Investor
  • Lakewood, NJ
Replied Nov 20 2022, 07:41

@Jerome Skinner bonus depreciation does not need to be taken in the first year, as long as you did not opt out of it in the previous years. In your situation, since you are placing in service as a rental for the first time this year, it will be the first time you are going to claim depreciation, so you should be fine.

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Julio Gonzalez
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Julio Gonzalez
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Replied Nov 21 2022, 08:28

@Jerome Skinner Was it the Landlord tax loopholes podcast with David Greene? That was a great episode! You don't have to take bonus depreciation in the first year of purchase. You can get a cost segregation study and then go back and amend your tax return. Did you place your rental into service this year?

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Bonnie Griffin Kaake
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  • Denver, CO
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Bonnie Griffin Kaake
  • Real Estate Consultant
  • Denver, CO
Replied Nov 22 2022, 16:17
Quote from @Jerome Skinner:

Hey all! After listening to the last episode about bonus depreciation, it left me thinking about my home I recently converted form primary to rental. In the episode it was said that bonus depreciation had to be taken in the 1st year, but am I able to take it in the 1st year of conversion from primary to longterm rental property? Or does it have to be the 1st year of purchase?

Jerome, your situation is different than the "normal" advice. Your depreciation will be based on your original purchase price and the date you began listing it for rent/its "occupancy date". Bonus depreciation does not have to be taken in the first year of ownership or occupancy. Each year you wait to do the cost segregation lowers the benefit based on how many years you have already depreciated it using a straight-line method. AND, you will incur a cost for a Change of Accounting form 3115 to change from straight-line to accelerated depreciation. On the other hand, if your income is going to go up significantly in the next year, wait. Bonus depreciation is based on the year of occupancy, not the purchase date unless they are the same. 

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Jerome Skinner
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Jerome Skinner
Replied Nov 23 2022, 07:53

Thank you all for you responses! This answers my question and more. To answer your question Julio, it was that episode and I placed my rental into service this year. And Bonnie, I just bought it in 2021, so the benefit has only been lowered by 1 year. I'm lacking funds to continue my real estate investing journey and this seems like a perfect way to get a tax break sooner to help with that.

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Basit Siddiqi
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Basit Siddiqi
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Replied Nov 24 2022, 15:15

Yes, you can claim bonus depreciation in the first year the property is converted from a primary residence(personal) to an investment property(business asset).