Bonus Depreciation for Qualified Property

[separate899]

Let’s say I purchase a home for rental income purposes and I claim 100% bonus depreciation. I later want to move into the home for personal use though. How long should I keep the rental home as a rental before converting it into personal use? Would 6 months be okay? 1 year?

[pk]

@separate899 , even if I assume that you are in the business of "rental residential properties", I do not believe  that bonus depreciation applies. Here is a ref. from the Federal Register: I have underlined the "useful life" requirement for the application of Bonus Depreciation.  

"

Section 168(k)(2)(A), as amended by the Act, defines “qualified property” as meaning, in general, property (1) to which section 168 applies that has a recovery period of 20 years or less, which is computer software as defined in section 167(f)(1)(B) for which a deduction is allowable under section 167(a) without regard to section 168(k), which is water utility property, which is

a qualified film or television production as defined in section 181(d) for which a deduction would have been allowable without regard to section 181(a)(2) or (g) or section 168(k), or which is a qualified live theatrical production as defined in section 181(e) for which a deduction would have been allowable without regard to section 181(a)(2) or (g) or section 168(k); (2) the original use of which begins with the taxpayer or the acquisition of which by the taxpayer meets the requirements of section 168(k)(2)(E)(ii); and (3) which is placed in service by the taxpayer before January 1, 2027. Section 168(k)(2)(E)(ii) requires that the acquired property was not used by the taxpayer at any time prior to such acquisition and the acquisition of such property meets the requirements of section 179(d)(2)(A), (B), and (C) and section 179(d)(3).  "

Here is another ref: for OBBBA -->  OBBBA 2025: How New Tax Rules Change Bonus Depreciation and Section 179 - DHJ

Is there more I can do for you ?

[separate899]

You’re right that residential rental buildings themselves have a 27.5-year life and don’t qualify for bonus depreciation. But IRS guidance and case law (see HCA v. Commissioner and the IRS Cost Segregation ATG) confirm that when a property is acquired, a cost segregation study can reclassify significant portions of the building into 5-, 7-, or 15-year property. Those components clearly meet the “20 years or less” requirement in §168(k)(2)(A) and are bonus-eligible. That’s why real estate investors regularly use bonus depreciation — not on the entire structure, but on the reclassified personal property and land improvements.

Can someone else who can answer my question let me know whether 6 months of qualified property is enough to claim bonus depreciation?  

[pk]

@separate899 

Agreed with you that if , and only if, you perform a cost segregation  ( i.e. take components of the rental property  and apply individual useful life for depreciation purposes ) , you can indeed  go under the 20 yr. depreciation requirement for  "bonus depreciation ".  However, your post  ( as I interpreted and obviously wrongly)  implied that you are talking about the whole "rental property" and therefore my  response.

While  another of my colleagues answer to your satisfaction, I am wondering  just how you propose to benefit /apply this "const segregation" method to benefit from bonus depreciation.  I would love to understand how you apply this.  At alienation you still have to recognize basis erosion and therefore gain ( capital or otherwise ) and recapture of the depreciation already allowed.  

Personally I am always  ;like to keep it simple because I am not smart enough to even pretend "clever by half".

Look forward to your explanation.