Depreciation: Rental -> Residence -> Rental

[taxesandmore]

A rental house is placed in service. Depreciation begins for 27.5 years. 

The house is rented for 5 years. It is depreciated during this time.

The landlord is done and never wants to rent again. The house is converted to personal use. According to the Depreciation Publication, it has been "Retired from Service" and no more depreciation occurs.

The house is used for personal use for 5 more years. No depreciation is claimed during this time.

Life changes and the owner decides to rent the house again.

The rental house is placed in service. Does depreciation restart at year 6? or reset with the adjusted basis (original basis - previously claimed depreciation) at year 1? Or does something else happen?

[Anonymous_ · Accepted solution]

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@taxesandmore wrote:

The rental house is placed in service. Does depreciation restart at year 6? or reset with the adjusted basis (original basis - previously claimed depreciation) at year 1?

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The latter; depreciation starts over (year 1) with a new 27.5-year recovery period and a new adjusted basis (adjusted for accumulated depreciation deductions taken).

[PatriciaV]

Option 2: depreciation starts over at year one using the adjusted basis.

Adjusted basis is the original purchase price less the total accumulated depreciation shown on the depreciation report for the final year the property was rented. Use this as the cost basis to start depreciating over the next 27.5 years.

Use the same method for any other rental assets of the property that are also brought back into service. Cost basis of land does not change and is not depreciated.