Depreciation home office and rental unit in same year

[slara22]

My husband, who is self-employed, used his home office between January and July 2021. In August, he stopped using his home office because our family went abroad for a one-year sabbatical (Aug 2021 to July 2022). During our time abroad, he has no home office. He intends to return to work from his home office in August 2022.

While abroad, we are renting our home. The rental is temporary and will be discontinued by June 30, 2022. We will return to live in our home in August 2022. 

The question: In 2021, should I claim depreciation for both the 7 months of home office, AND for the 5 month rental period? 

When I claim depreciation for the rental a large amount  (over $5000) is deducted from our rental net income. It doesn’t seem right. Should I claim depreciation for the rental even if it is only temporary?

Thank you!

[Mike9241]

you're renting your home

so these are the rules for a home with rental and personal use 

 your personal use of your home is approx 7 months (210 personal days) while the retail was approx 5 months (150 rental days)

assuming the rental was at fair rental value and if rented to family or friends it must be rented at fair rental value and used by them as their primary residence.  if not these days count as personal use days.  

since your personal days are more than 10% of the rental days was the number of rental days less than 15 days? if no then (if yes, the property is treated entirely as a personal residence.  do not report rental income or expenses)

treat as a dwelling unit used as a home. prorate expenses between personal and rental use. that includes mortgage interest and taxes

the rental portion of interest and taxes is not limited to retail income. other expenses like depreciation are limited to any remaining net income from the rental 

any day rented at less than fair market value is a personal day not a rental day  (that would increase the 210 days and obviously decrease the 150so if you rented at less than fair rental value for those 5 months 

[slara22]

Thank you so much Mike! I am sorry, I should have clarified. Yes, the rental was formal, at fair market value, to tenants I am not familiar with, and it is being used as their primary residence (Aug 2021 - June 2022).  As you suggest, I am prorating expenses between rental and personal use. Thank you!

As for depreciation–I normally claim depreciation of my home as part of my home office deductions (in 2022 it will correspond to 7 months only). Should I ALSO claim depreciation for my home for the 5 month rental period? If I do this, TurboTax significantly reduces my net rental income (like by $5000) which doesn’t quite seem right. 

Does claiming depreciation for my rental unit even apply in my case, given that it is only temporary (10 months total only)?

Thank you so much, I really appreciate your help, Susanna

[AnnetteB6 · Accepted solution]

Yes, you should claim the depreciation for the rental of your home because it is being operated as a business since you are renting it.  It does not matter that you expect it to be only temporary at this point in time.  

When you sell the property in the future, you will need to report that there was some business use of the home (both as a rental and for home office use).  At that point, the depreciation that was claimed or should have been claimed will be taken into account.  Therefore, you should claim the depreciation and use the tax advantage that it gives you by reducing your rental income.

@slara22

[slara22]

Thank you so much @AnnetteB6  for your reply! This is very clear and helpful. 

Susanna