Depreciating a home converted to rental

Forum|Forum|2 years ago
October 16, 2023
2 replies
21 views

Hello,

If a home is converted into a rental, what should the basis be and when should the depreciation start?

For example:

The house was bought in year 2000 for $100K.

In year 2010, $5K go into making it a rental.

Should the 27.5 years start in 2010 and the basis be whatever is assed value in 2010?

Thanks.

Best answer by Anonymous_

Expert Reviewed

Depreciation begins on the date you place the house in service as a rental.

The basis for depreciation is the lesser of your adjusted basis or the fair market value on the date of conversion to rental use.

Note that it is the fair market value of the property, not the assessed value for property tax purposes.

In your example, you would either $105,000 or the fair market value in 2010, whichever is lower (presumably that would be $105,000).

Anonymous_Answer

Level 15

Expert Reviewed

Depreciation begins on the date you place the house in service as a rental.

The basis for depreciation is the lesser of your adjusted basis or the fair market value on the date of conversion to rental use.

Note that it is the fair market value of the property, not the assessed value for property tax purposes.

In your example, you would either $105,000 or the fair market value in 2010, whichever is lower (presumably that would be $105,000).

brpritt

Level 2

Your depreciation starts on the day you started making the improvements. Your basis will be your purchase price plus any capital expenses from the day of purchase. (Pave the driveway, add a swimming pool, upgrade the exterior, add a deck, etc.

lameriAuthor

Level 5

@Anonymous_

Thanks, what are the main considerations regarding whether it's good to have a low or high basis?

Also, what happens to a car used for the rental (part-time, less than 20%)? Does it need to be depreciated? Let's say the car was bought in 2007 for $3K.