Claiming depreciation

4 Replies

Hi Guys,

I am moving into a new home in December and will be renting out my current condo. I understand that if I list the condo during this Calendar year I will then be able to claim depreciation. Is it worth trying to get the property listed this year in order to claim depreciation if there is no income from the property for this year? Will the depreciation create a loss on the property that I can claim against my personal income?

Thanks,

"Will the depreciation create a loss on the property that I can claim against my personal income?"

If you actively participate in the rental, i.e., you are exercising independent judgment with respect to the rental and not simply ratifying decisions made by a manager, then, you may deduct up to $25,000 of real estate losses in a given tax year if your modified adjusted gross income (basically your non-real estate related income, with a few tweaks) is less than $100,000.  If you make between $100,000 and $150,000, then this $25,000 number is reduced by $1 for every $2 that your modified adjusted gross income exceeds $100,000.  If your modified adjusted gross income is greater than $150,000, then you cannot deduct any real estate losses against your other income, unless you are a real estate professional in the eyes of the I.R.S., which it doesn't sound like you are.

Also, keep in mind that you would only get 1/2 month's worth of a full year's depreciation anyway if the property truly was placed in service in December.

@Logan Allec So if you buy a property say in June of any given year, and it comes with tenants already for example you can only claim 6 months of depreciation? I was under the impression you could claim deprecation for the whole year no matter when you bought it as long as it was in operation.

@Samantha Klein , you claim depreciation for the whole year except in the year of purchase and in the year of disposition.

For nonresidential real property and residential rental property, you treat the property as placed in service, or disposed of, at the midpoint of the month in which it was actually placed in service or disposed of.  This rule is known as the mid-month convention, which applies to all residential and nonresidential real property, such as buildings.

Depreciation on personal property (such as furniture and equipment) employs the half-year convention, under which you treat the property as placed in service, or disposed of, at the midpoint of the tax year in which it was placed in service.

There is another convention known as the mid-quarter convention, which applies to personal property if the total depreciable basis of property* you placed in service during the last 3 months of the tax year is more than 40% of the total basis of all such property you place in service during the year.  Under the mid-quarter convention, you treat the property* as placed in service, or disposed of, at the midpoint of the quarter in which it was placed in service.

*Nonresidential real property, residential rental property, and property placed in service and disposed of in the same year are excluded for purposes of the mid-quarter convention.

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