Depreciation

Tax, SDIRAs & Cost Segregation
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Depreciation

Jeff Wang
San Francisco, CA · Member since 2013 · 18 posts · 3 votes

Hello,

I have become an accidental landlord for the last 2 years. I rented out my house and I don't think I took depreciation correctly. I was using HR Block basic, which didn't help very much in terms of that. Questions:

(1) Should I be using HR Block Deluxe/Premium to do this or use a CPA?

(2) If I didn't claim depreciation, do I file an amendment or a catch up?

(3) I understand that I can depreciate the building only over 27.5 years. So if I bought the house for 695k and the land is worth 200k, I can only depreciate 495k right?

(4) Regarding home improvement, I can depreciate appliances over 5 years right?

(5) I remodeled my kitchen and bathrooms, do I add the cost of that to the cost basis? If i do that, how do I take into account the cost of appliances, etc since I'm depreciating on a different timeline (27.5 vs 5 years)

Thanks!

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  • Jon Holdman
    Rental Property Investor · Mercer Island, WA · Member since 2008 · 22k+ posts · 14k+ votes
    13y

    1. I strongly suggest a CPA. These programs can fill out the forms. But they won't help you with knowing what you can and can't deduct and HOW to fill out the forms.

    2. You would file amended returns. You need to do this. Depreciation affects your basis when you sell, so you need to get it right as you go along.

    3. Correct.

    4. I believe that's correct, but I leave this stuff to my CPA. I tell him what I spent on what stuff and he does the details.

    5. Same here w.r.t. the CPA. This is trickier. Repairs are expenses. They don't affect your basis and are fully deductible in the year you spend the money. OTOH, improvements, like a new roof or furnace, have to be depreciated over multiple years. Different items have different schedules.

    5a. You need to track all your items separately.

    If you own a $700K house I'm guessing your AGI is to high to be using the passive loss this may create from your ordinary income. So, you'll want to be carrying this forward to use against the gain when you sell.

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  • Jeff Wang
    OP
    San Francisco, CA · Member since 2013 · 18 posts · 3 votes
    13y

    Hello,

    That was very helpful, thanks! Will talk a CPA regarding this. Unfortunately, I didn't keep very good records of all my improvements on this so it will be difficult to get this exactly right.

    Thanks again.

    0Reply
  • Steven Hamilton IIPro Member
    Accountant, Enrolled Agent · Grayslake, IL · Member since 2011 · 5k+ posts · 2k+ votes
    13y

    Jeff Wang,

    Jon Holdman is correct. That you need to consider using an accountant at least the first year.

    Their premium software is ~ok; however, Software you get what you put in.

    -Steven

    [email protected]224-381-2660
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