Hi there, hope someone can help me with this question. I have had conflicting advice from cost segregation specialist versus our CPA. If a primary residence is converted to a long-term rental property, can bonus depreciation still be claimed in the first year? Our CPA says yes but the cost segregation specialist says bonus depreciation does not apply to primary converted to rental. Does anyone have any advice?
If a primary residence is converted to a long-term rental property, can bonus depreciation still be claimed in the first year? Our CPA says yes but the cost segregation specialist says bonus depreciation does not apply to primary converted to rental.
Yes, you can apply bonus depreciation to a converted property, with some caveats: - it will be based on your original purchase price, not today's value - bonus depreciation for 2024 is 60%, not 100% - most importantly, you may or may not benefit from cost segregation/bonus depreciation
Accountant · San Diego, CA · Member since 2019 · 1k+ posts · 552 votes
2y
Hey Ajul, that bonus depreciation is no longer at 100%. in addition to that, you need to qualify as REPS or be using the short term rental loophole to even be able to take advantage of that deprecation against your active income. I would strongly recommend linking up with a real estate focused accountant to get that sorted out. best of luck!
If a primary residence is converted to a long-term rental property, can bonus depreciation still be claimed in the first year? Our CPA says yes but the cost segregation specialist says bonus depreciation does not apply to primary converted to rental.
Yes, you can apply bonus depreciation to a converted property, with some caveats: - it will be based on your original purchase price, not today's value - bonus depreciation for 2024 is 60%, not 100% - most importantly, you may or may not benefit from cost segregation/bonus depreciation
Accountant · Brea, CA · Member since 2018 · 105 posts · 59 votes
2y
If you have lived in the property for more than 14 days or more than 10% of the rental days then yes, no rental losses are allowed (i.e. bonus depreciation). You can find this under section 280 A
Haha this is why this situation is so confusing - many people with differing interpretations! Let me give a little more context on the situation
I'm aware of current 60% bonus depreciation, and my wife is REPS. We will be theoretically converting this unit to a long term rental (not STR) so we won't qualify for the STR loophole. Specifically want to know if converting to LTR will allow for bonus depreciation which we would use to offset w2 based on wife REPS status.
If a primary residence is converted to a long-term rental property, can bonus depreciation still be claimed in the first year? Our CPA says yes but the cost segregation specialist says bonus depreciation does not apply to primary converted to rental.
Yes, you can apply bonus depreciation to a converted property, with some caveats: - it will be based on your original purchase price, not today's value - bonus depreciation for 2024 is 60%, not 100% - most importantly, you may or may not benefit from cost segregation/bonus depreciation
I talked w/ my CPA about this exact thing becuase I have a similiar situation with my property.
From my understanding, properties purchased before 9/27/2017, and placed in service after 2020, are not eligible for bonus depreciation.
This is stated in the tax code under Section 168(k)(8) which outlines the bonus depreciation phase-down rules for property acquired before 9/27/17. Since the primary was purchased before 9/27/2017 and was placed in service after 2020, it is not eligible for bonus depreciation.
(8)Phase Down
In the case of qualifed property acquired by the taxpayer before September 28, 2017, and placed in service by the taxpayer after September 27, 2017, paragraph (6) shall be applied by substituting for each percentage therein—
(A)“50 percent” in the case of—
(i)property placed in service before January 1, 2018, and
(ii)property described in subparagraph (B) or (C) of paragraph (2) which is placed in service in 2018,
(B)“40 percent” in the case of—
(i)property placed in service in 2018 (other than property described in subparagraph (B) or (C) of paragraph (2)), and
(ii)property described in subparagraph (B) or (C) of paragraph (2) which is placed in service in 2019,
(C)“30 percent” in the case of—
(i)property placed in service in 2019 (other than property described in subparagraph (B) or (C) of paragraph (2)), and
(ii)property described in subparagraph (B) or (C) of paragraph (2) which is placed in service in 2020, and
(D)“0 percent” in the case of—
(i)property placed in service after 2019 (other than property described in subparagraph (B) or (C) of paragraph (2)), and
(ii)property described in subparagraph (B) or (C) of paragraph (2) which is placed in service after 2020.
Duxbury, MA · Member since 2018 · 17 posts · 3 votes
4mo
It appears bonus depreciation can apply when converting a primary residence to a rental, but the rules are confusing because bonus depreciation was phasing out and then resumed under new legislation. I bought my primary residence in 2022 when bonus depreciation was 100% under the prior law. I couldn’t claim bonus depreciation if I converted it to a rental today, because the current law only covers assets acquired and placed in service after January 19, 2025.
Is my understanding correct? Is there any way the 2022 bonus depreciation rate would honored today? Both 2022 and the rate today are 100%.
Accountant · Los Angeles, CA · Member since 2016 · 2k+ posts · 897 votes
3mo
There are really two separate questions buried in here, and mixing them up is what creates the conflicting advice. Yes, once you convert the home to a rental you can depreciate it and even run a cost segregation study to break out the 5, 7, and 15-year components and accelerate that regular depreciation. Just know your starting basis isn't your original cost, it's the lower of your adjusted basis or the property's fair market value on the conversion date, with land excluded. Where the cost seg specialist is right is on bonus depreciation specifically: a property you originally bought for personal use and later convert to a rental generally doesn't qualify for bonus, because the conversion isn't treated as a fresh acquisition and the original-use requirement isn't met. So even with 100% bonus back on the table, you'd pick up the accelerated regular depreciation from the cost seg but not a first-year bonus write-off on the existing components (brand-new items you buy and place in service after converting can be a different story). And remember, if neither you nor your spouse is a real estate professional, those rental losses are generally passive and may be limited anyway. The exact result depends on your numbers and timing, so confirm it with your own CPA before filing.
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