Unintentional landlord... do I depreciate?

Question

Hoping from some help from this excellent BP community, since I am doing my own tax return. It is usually very simple for me.

I purchased my condo in 2006.  Permanent residence until military transfer in 2010.  I have rented the property since 2011, but have never deducted property deprecation on my tax return. Should I?

If so, how do I calculate the property depreciation for 2013? The purchase price in 2006 with in-service date of 2011? Purchase price in 2011 with in-service date of 2011?

I plan to sell the property when the market returns, hence the "unintentional landlord."

I do not have any other investments (properties).

Please PM if you wish to take this offline.

Thank you.

Elizabeth Colegrove · Answer

Personally depreciation is one of my FAVORITE things about my rentals at tax time! I would never want to get rid of that treasure. Plus the IRS is kind enough to give you OUTS to having to pay it back, 1031's, personal property reclaiming, etc!!!

I personally would never want to get rid of that little gem, so before I didn't take depreciation I would consult a CPA.

Dawn Anastasi · Answer

Many people are hesitant to hire professionals, because they charge a bit more than they are comfortable with.  A bill of $400 or so seems "uncomfortable".  But it's like getting on a roller coaster the first time ... a bit uncomfortable, but once you do it, you'll generally be glad you did.  You might even go back.

Dave Toelkes · Answer

Na Na

Depreciation does not apply to the property for the period of time you used it as your primary residence.  Depreciation started on the date you placed the property in service as a rental even though you did not claim it on your tax return.

You only have three years from the original due date to amend a tax return.  Your window to amend 2011 return will close next year.

Dave Toelkes · Answer

Na Na

Your tax basis for depreciation is the LOWER of your purchase price, or, the fair market value of the property on the date you placed it in service as a rental. Since you are waiting for the market to return, I am guessing that your property's value is less than what you paid for it.  If so, then the lower FMV becomes your new tax basis.

An appraiser in the area local to the property can give you an appraisal of the value on the date in 2011 when you placed the property in service.  Then take the appraisal to a tax professional to help you compute the depreciation basis for the improvements and set up the depreciation schedule.  The tax pro can also help you file amended returns for 2011 and 2012 to claim the depreciation that you overlooked.

If you feel like tackling it yourself, IRS Pub 946 has all the directions on how to depreciate property.

Kenneth Hynes · Answer

Na Na

Would definitely take the deprecation expense of your property.  I would enlist the aid of a professional to do it the first time.  I would also look at re-filing for 2011,2012 also and claim deprecation there as well .

To calculate depracation, you can only depreciate the building , not the land, and it would start  with the inservice date of 2011.  Again check with a professinal the first time you do it.  Remember building are depreciated over 27.5 years, and should be constant year to year as long as the property was in rental status for the whole year.

Na Na · Answer

Thank you for the feedback.  Yes, the home has dropped in value since original purchase.

Since the home was not purchased to be a rental property, I was unsure if depreciation would still apply.

The tax software I use is pretty straight forward and can apply property depreciation for the current year.  It just needs the numbers to make the calculation.

Thanks again.

Elizabeth Colegrove · Answer

While I am not a CPA my understanding has been, you SHOULD always depreciate because if you do not the IRS will still count it against you later.

Unintentional landlord... do I depreciate?

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