Tricky depreciation on a condo

[Kevin Roy]

Hello everyone,

I am trying to figure out how to depreciate my rental property. Any help would be greatly appreciated!

Here's the details.  We bought the condo in 2006 (towards the height of the bubble..) for around 180k, lived in it for about a year then moved away.  We didn't know anything about depreciation and failed to take advantage of it while initially renting it out.  After about 3 years of renting, we moved back in.  After 4 years, we moved out and are now renting it again; and are more educated on the way rentals work. We want to depreciate it for tax purposes but are unsure exactly how to do so because of buying during the peak of the market.  The market value of the property is now about 140k.  Do I depreciate based on the purchase price and upgrades to the property, or depreciate the market value?

Thanks again for any advice!

-Kevin

[Basit Siddiqi]

@Kevin Roy

You have a very unique scenario.

When you convert a personal residence to a rental property, you depreciate the property based on the FMV at the date of converting it to a rental property.

You are also required to take depreciation...which you did not do. You can normally "catch-up" the depreciation if you missed depreciation in the past by filing a "change in accounting" form. However, you also changed it back to a personal residence for a period.

Furthermore, it may be hard to find out what the FMV of the property when you initially converted it to a rental.

All in all, you have a very unique scenario...The accountant you go with may have to research a couple court cases to see how to properly fix your issue.