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Depreciation on rental properties

Can I cease to claim depreciation on rental properties after several years of depreciating them?

2 Replies
Expert Alumni

Depreciation on rental properties

If you indicate that you 'converted the property to personal use', in the Property Profile section, depreciation will stop as of that date, as the property is no longer considered Rental Property.


Be sure to save the Depreciation Schedule Form 4797 (landscape form) showing the Accumulated Depreciation taken.  You will need this number when you sell the property and report it under 'Sale of Business Property' (as it was once a depreciated rental).


If you are still renting the property, you can choose to stop claiming the Depreciation Deduction; however, when you sell the property, the IRS will calculate your gain or loss based on the correct depreciation amount, whether you actually claimed it or not. 








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Level 15

Depreciation on rental properties

By federal law, you are required to depreciate anything that is used to produce business income. Rental property income is business income and the rental property itself is utilized to produce that income. Therefore, so long as you continue to utilize the property for that purpose you are required to depreciate it.

When you stop using the property to produce income, you convert it to personal use. Depreciation stops on that date of conversion.

If you continue to use the property to produce income without depreciating it, be aware that when you sell the property you are required to recapture all depreciation taken and/or all depreciation you "should" have taken and pay taxes on it.  Recaptured depreciation is added to your AGI and has the potential to bump you into the next higher tax bracket.

This means if you don't take depreciation, you will pay taxes on that money. Then you will pay taxes on it "AGAIN" when you sell the property and have to depreciate it. Yes, that's double taxation. It's also the price you pay for not having depreciated it as required by law. You can call that your penalty for not having depreciated it, if you want. But you will pay it.


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