Hi all,
I have a question about residential rental property that was twice-converted in terms of usage. The owners acquired the property via a 1031 exchange with the following (example) details:
- Adjusted tax basis of 100k from the 1031 exchange
- Purchase price of 200k
- A new assessed property value of 150k for improvements (depreciable part; 75% of purchase price) and 50k for land (non-depreciable)
- Rented out for 1 year after purchase and depreciated normally (over 27.5 years)
After 1 year of renting, the owners moved in and lived there for 4 years. Now, after those 4 years, they moved out and rented it out again.
My question is about how to depreciate the property today now that the property is generating rental income.
- Do they continue the existing depreciation schedule (26.5 years left)?
- Do they start a new depreciation schedule (27.5 years) with the new adjusted basis after that first 1-year rental?
- Did either conversion [(1) rental property to personal use and (2) personal to rental] trigger the need to record and use the then-current market value of the property for depreciation purposes?
- Are there other considerations?
Any insights help. Thank you!
