Depreciating a house owned for 50 years

[Andrew C.]

Hi BP community .  


My grandparents have lived in a 2 - unit duplex in Cambridge MA for 53 years. They purchased their home for $35k - the value has sky rocketed in the past 15 years. They are looking to move out of their home and turn it into a rental property.

Will we be able to write off depreciation on this house? Should we look to hire an accountant to do a cost segregation study for us?

Looking for any answers or advice! 
 

[Dave Toelkes]

Yes, it can be depreciated if your grandparents turn it into a rental.  Their original cost plus the value of any improvements made to the property over the years minus the original cost of the land the dwelling structure sits on will be their basis for depreciation.  The value today is irrelevant when determining depreciation basis.

Cost segregation studies are not cost advantageous for a single family residential rental so no need to go there.

I suggest that your grandparents might be better off selling the property and using their tax free §121 capital gains exclusion.  A talk with their estate planner would be a good discussion for them to have.