Rental depreciation and deductions - getting started

[Nick Kellar]

I purchased a house for cash in NH in 2015. I had a family member live in the house until June of 2018. 

In July I completed a lot of updates to the house (new well, new 200 amp electrical service and panel, new windows, replaced forced air ductwork, added a bathroom. 

The house was then rented in August of 2018. 

Net income for the house after property tax and insurance is $500 per month. 

I am retired and my income is thru 1099s not W2. 

Trying to understand if depreciation on the house now that it is a rental is appropriate, also heard that 100% of improvements can be written off in the year they occurred. 

Also trying to understand section 179 and if this property would be included.

Connecting with a professional who could get me pointed in the right direction, and perhaps reading material for non professionals would be helpful.

Nick

[Michael Plaks]

@Nick Kellar

Big picture first.

1. If you're retired, it all depends on your income. You say it's thru 1099s - which could mean working on contract jobs (1099-MISC), drawing money from retirement savings (1099-R) or other things. If you have a tax return prepared during your retirement period - look at the bottom of the first page for the number called AGI, Adjusted Gross Income.

2. Depreciation on a rental home is not an option. It is required. You must take it.

3. Everything else you mentioned, like improvements and Section 179, are basically ways to increase depreciation. Before looking into these, we need to figure out if there's any benefit for you in increasing depreciation. And that depends on your AGI.

Have to disagree with my colleague's advice about reading IRS publications for help. They are horribly written and create more confusion than clarity. If you're interested in learning about taxation, there're some books instead.