Tax Implications for Moving out of My Owner-Occupied Duplex

[Kyle Seidel]

I currently live in an owner-occupied duplex and will be moving out next year and then renting my side. I have some questions and am double checking what my accountant has done so far.

1. My side is 3 bedrooms. I have the 1 downstairs basement bedroom and my 2 roommates have the 2 upstairs bedrooms. Is it correct that I can only write off 1/2 of the expenses on my side? In my opinion I don't see why I couldn't write off 2/3 of my expenses since I'm only 1/3 of the people here and have 1/3 of the space?

2. What happens to the depreciation schedule for my property when I move out? I paid $160k for my duplex ($124kish building and $36kish land). Currently since I live in 1/2 of the duplex my accountant is depreciating it Straight Line 27.5 years at $62k (1/2 of what it would be for a straight up rental). When I move out would this then convert back into $124k?

3. What would happen to capital improvements like a roof when I move out? Would those also convert back into the original cost instead of only being able to write off 1/2 the depreciation?

4. What are the depreciation schedules for landscaping (rock and matting) and windows? I've seen multiple sites say 15 years but I've also seen some that say 27.5 years for the windows.

Thanks!!

[Dave Toelkes]

1.  You live in one half (downstairs) while your roommates share the other half (main level).  If the square footages for the downstairs area and the main level are the same, then your accountant is correctly allowing one-half of expenses for the entire building, such as yard maintenance and roof repairs.   Any costs incurred exclusively for your rental half (painting, repairs, etc.) are 100% deductible as rental expense, while those same expenses for your residence unit are non-deductible personal expenses.  Capital improvements to the entire building (such as a new roof) are allocated 50% to the rental unit and 50% to the residence unit and the basis for each half is adjusted accordingly.  Only the residential half of the improvement cost for the roof is depreciated on a new 27.5 year depreciation schedule.  

2.  When you move out, you continue depreciating the rental half of the duplex on you currect depreciation schedule over the remainder of your 27.5 year timline.   You will start a new 27.5 year depreciation schedule for the $62K depreciation basis you have in your residence unit beginning on the date you convert your residence unit to a rental.   Run the depreciation schedules concurrently; do not combine the basis for each unit into a single deprecition schedule.

3.  See response to #1 and #2.  The residential unit portion of the new roof has already been added to your residential unit cost basis.  When you convert your residence to a rental, begin depreciating your adjusted cost basis (which already includes the roof replacement) on a new 27.5 year depreciation schedule.

4.  Landscaping improvements have a 15 year class life.  Major structural components of the dwelling structure (roof, windows, HVAC, water heater, etc) have the same 27.5 year class life as the dwelling structure itself.

Sounds like your accountant is on top of everything.