Yes, Depreciation is typically a tax deduction allowed for property owners—meaning, if the home is still legally owned by the trust rather than the client, the ability to claim depreciation may belong to the trust and not your client.
However, tax treatment can vary depending on how the trust is structured. If the client has beneficial ownership or if income and expenses pass through to them under tax law, they may still be able to claim some deductions. It’s important to check how the trust is classified (revocable vs. irrevocable, grantor vs. non-grantor) and whether the IRS sees the client as effectively "owning" the property from a tax perspective. Here are some trust considerations.
- Revocable Living Trusts: If the trust is revocable, the grantor (the person who set up the trust) is typically still considered the owner for tax purposes. That means depreciation deductions can generally be claimed by the grantor. Irrevocable Trusts: In an irrevocable trust, ownership is transferred from the grantor to the trust itself. If the trust is responsible for managing the property and reporting rental income, the depreciation deduction usually belongs to the trust—not the person renting out the property.
- Grantor Trusts: A grantor trust is treated as an extension of the grantor for tax purposes. If rental income and expenses flow directly to the grantor, they may be able to claim depreciation on the property.
- Non-Grantor Trusts: If the trust is non-grantor, it is considered a separate taxable entity. Depreciation deductions typically stay with the trust unless distributions of income or deductions are made to beneficiaries.
- Beneficiaries & Pass-Through Taxation: In some cases, trusts distribute rental income to beneficiaries. If a trust reports rental income and expenses on a pass-through basis to a beneficiary, that individual may claim depreciation.
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