Hello all. This has been a very busy year and I let one of my rental houses sit without tenants for all of 2014 till now. We have been working on it to get it rent ready, but it is not quite done. It was rented for half of 2013 but he tenants did damage I had to fix, and while we were at it we made improvements. Yes, I know that is way TOO slow.
Will I still be able to claim depreciation on it for 2014? Will I be penalized in any way for this? Thank you in advance for all information on this important issue.
You can but it should be pro-rated for the time it was for rent or rented:"A residential rental building with a cost basis of $150,000 would generate depreciation of $5,455 per year ($150,000 / 27.5 years).In the year that the rental is first placed in service (rented), your deduction is prorated based on the number of months that the property is rented or held out for rent, with 1/2 month for the first month. If the building in the example above is placed in service in August, you can take a deduction for 4½ months' worth of depreciation, amounting to $2,046 ($5,455 x 4.5/12)."
But I have been working on this house for all of 214 till now. I am close, but I dont' think I will get tenants in December. Can I claim any Depreciation this year? Will there be penalties or recapture?
@Jassem A. What you cited only applies when first placing a property into service. It is not applicable to the case mentioned by the OP since he has already placed the property into service.
Mark Forest You should continue to depreciate the property through the maintenance period. Even though it is not rented, it is being held as an investment with the purpose of making it rent ready. Technically, since you had already placed the property into service the year before, you are just making capital improvements. Once you complete your capital improvements, you add them to the cost basis and depreciate them as well.
Per the IRS:Idle Property
Continue to claim a deduction for depreciation on property used in your business or for the production of income even if it is temporarily idle (not in use). For example, if you stop using a machine because there is a temporary lack of a market for a product made with that machine, continue to deduct depreciation on the machine.
Technically, since you had already placed the property into service the year before, you are just making capital improvements. Once you complete your capital improvements, you add them to the cost basis and depreciate them as well.
Thank you for the help. Actually I have had this house rented for about four years before the most recent tenants who caused the damage left. I have been working on it and other houses throughout 2014.
Create Lasting Wealth Through Real Estate
Join the millions of people achieving financial freedom through the power of real estate investing