Investors & landlords

That is correct, you cannot change ownership percentage in an existing asset.  To change your ownership percentage you have to retire the existing assets(s) and create a new one.  For instructions on how to do this, see DianeW777's answer to a similar question:

... See the instruction below for clarity and setting up the property under a new ownership percentage.

Since you are lowering your ownership percentage, then the same application should be followed for the capital improvement.  This means each of you should be depreciating your ownership percentage of the capital improvements (50-50)..

1. As you work through the asset, write down the amount in the COST box and the COST OF LAND box.
2. After working through that asset in it's entirety, write down the prior years depreciation and current year depreciation. Add those two numbers together to get the total depreciation taken on the property.
3. Now subtract the total depreciation taken from the amount in the COST box that you wrote down earlier. This will be your new cost basis on this specific asset (this is the total for both building and land).
4. You must do the above for each individual asset listed.
5. Once done, the entire property and all assets associated with it are converted to personal use on the date that is one day BEFORE you changed to a lower percentage of ownership of the property. 
6. Now you will enter an entirely new rental property using your share percentage.
7. Your acquisition date of that property will be the date you changed the ownership percentage. Your cost basis of the property and any other assets listed will be the "adjusted cost basis" you figured on each asset with the math above.
8. Land will have the same cost basis you originally used (land is not a depreciable asset)
9. Depreciation will start over from day one (the date you changed the ownership percentage) for the next 27.5 years.

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