Can I take partial depreciation?

Question

Hi all! I had a question when I started doing taxes for my rental property for the year 2019. The unit was rented for the entire year. So here's the scenario.

Total income from rental = $10,000

Expense (including repairs, mortgage interest, taxes but not including depreciation) = $6000

Depreciation for 2019 is about $7000. But if I take the entire depreciation, my total expenses comes up to $6k + $7k = $13k which is $3k beyond my income.

So here are my questions.

1. If I take entire depreciation of $7k, and have $3k in losses, can I carry over this loss into next years taxes for the rental?

2. Or can I take partial depreciation of $4k just enough to offset the income?

Your expertise in this matter will be appreciated.

Basit Siddiqi · Answer

@Swati PatelThere is no such thing as taking partial depreciation.There are some items that you can do to accelerate/slow down depreciation but there is no such thing as partial depreciation.Accelerate depreciation = Bonus depreciation, section 179 expense, cost segregation analysisSlow down = Making an election to opt out of accelerated depreciation.Regarding whether or not you can utilize the rental losses to reduce your taxable income...It depends on what your adjusted gross income is.

Steven Hamilton II · Answer

Based upon your questions I'd strongly advise finding an accountant to work with. You sign a tax return under penalties of perjury. It is not something you want to prepare incorrectly.

Natalie Kolodij · Answer

You are required to take depreciation.

You set it up year one- Make sure you accurately split out your land vs. building for this initial year.

Then it carries forward for the life of the property (27.5 years if a residential rental)

A separate issue is passive losses and their deductibility. If your AGI is over $150k and your rentals have losses you may not be able to deduct those losses in that year, they will carry forward to a year when your income is under the $150 or when you haev passive income to offset to apply the losses to.

You can not alter how much loss is generated by starting and stopping depreciation- once it's rolling it continues forever.

Matthew Talmadge · Answer

Depending on your AGI and participation level, you may be able to take the loss in 2019.  If not, it will carry forward.

Matthew TalmadgeDodson CPAs

Robert C. · Answer

@Swati Patel, I'm not a tax professional, so you should talk to one. But my understanding is the loss would carry forward. There is no such thing as taking partial depreciation. You either use it or lose it (depreciation recapture will happen if you sell later no matter what, excluding inheritance). Although, if you think about it, the carry forward loss does the same thing as if you could hypothetically take partial depreciation this year, and then take more in a later year (once again, you can't do that).

Swati Patel · Answer

Thank you @Robert C., @Matthew Talmadge and @Basit Siddiqi for your responses. This clears my doubt that I can't take partial deduction and that I will have to take full deduction and that I can carry over losses to following year.

Followup question - Say after couple years of carrying over losses, my losses eventually becomes greater than the income for say year 2022, then could I skip taking depreciation entirely for that year? Or am I *required* to take depreciation no matter what?

Can I take partial depreciation?

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