@chuckjim wrote:
We lost our home in 2014 due to a fire. We had insurance and rebuilt the home in 2015. This year(2024) we rented it on Airbnb and that is why we need to establish the cost basis of our home for depreciation to offset gains from rental.
But I think that is irrelevant if both the rental and the sale happened in 2024. I don't even think you can legally claim depreciation in this situation, but I could be wrong.
@Critter-3
Even if you could, this is what would happen:
You place the property in service as an AirBnB. Your basis for depreciation is the cost basis of the property, minus the value of the land (even though the land does not have a basis in your situation, it has a value). Since the basis is $450,000, let's say the land is $50,000. So the basis of deprecation is $400,000. Your depreciation is $1212 per month for each month the property is available for rental. That is an expense that decreases your taxable rental income on schedule E without decreasing your cash flow. You pay less tax on the rental income.
Then, on the capital gains calculation, even if you are covered by the $500,000 exclusion for married filing jointly, you must still pay depreciation recapture at your regular income tax rate. That causes you to pay more income tax on the sale of the property, that exactly balances and cancels out the tax you saved on the rental income.
However, if your net rental income is zero or negative, you generally can't take the loss against your other income. That means you might get no tax savings from depreciation AND have to pay income tax on the recapture. A net increase in your tax bill for no benefit.
In any case, you may want to consult a professional.
