Foreign rental property

[9month9wine]

Dear experts,

I have rental properties in Canada for years and I became US tax resident in 2020. When using TurboTax to prepare 2020 tax return, it asked for "Date placed in service". If I fill in the "real" date (a few years back), the "Prior depreciation" shows a number which I never have. Questions,

1. Date acquired, should I put down the date I acquired the property? Or the date I become US tax resident? As all these properties have been treated as "deemed disposition" when I departure Canada. 

2. Date placed in service, should I put down 01/01/2020? Or the date I started to rent it out? If I put down the date it started to be rent it out, as I said early, the 'Prior depreciation" has a value which I think is incorrect as I never use it to deduct rental income.

3. Enter the total cost when asset was acquired, same as question #1, should I use the purchase price plus closing cost plus improvement cost? Or fair market value when I become tax resident in US?

4. "Life" shows on Form 4562, should it be 27.5 years? Related to question #2, depends on which date to be used as "Date placed in service".

5. I installed an AC in 2018 and fence in 2019, if "Date placed in service" use real date, these cost can not be added to cost basis as improvement, then how to report these cost in 2020 tax return?

Appreciate your help!

[ThomasM125]

You would enter the date you became a citizen for the date acquired. The date placed in service would be the date it was available for rent. Use the fair market value of the property when you put it into service as the cost basis.

The life would be 27.5 years, that is standard for residential rental property. You should enter the fair market value of the AC unit and fence when you put the rental into service for their cost basis.

[9month9wine]

Thanks ThomasM125! Does this mean the "acquired date" could be a date after "date placed in service"?

I am tax resident of US but not US citizen. Does this matter to the date acquired? Should I use the date I become US tax resident instead?

I will try what you suggested and see if the "Life" amount would change to 27.5 years. Now it is 30/40 years.

Thanks!

[9month9wine]

Put in a later date (i.e. 10/01/2019) as "date acquired" and a early date (i.e. 10/01/2016) as "date placed in service" will cause error in TurboTax. :(

[9month9wine]

I found partial answers from another post which explained why the depreciation period were 30/40/27.5 years.

But I still not clear which date should I put as "date acquired" and "date placed in service" as I become resident alien in 2020 but rental properties outside United State were placed in service since 2016.

TurboTax will automatically calculate the "Prior depreciation" which does not exist. 

[Carl]

Date acquired has no bearing on depreciation. Depreciation starts on date placed in service. So you can't place a property in service, before you acquired it. (This is obvious of course, so whoever told you otherwise just didn't think it through)

Your date in service will be the date you became a resident for tax purposes. If that date was before 2018, the depreciation will be over 40 years. If that date was 2018 or after, then depreciation will be 30 years.

Foreign rental property placed in service before 2018 is depreciated over 40 years. If placed in service in 2018 or after it gets depreciated over 30 years. So make certain you indicate on your U.S. tax return that the property is foreign rental property, since it's not located in the U.S.

[9month9wine]

Thank you Carl! This makes sense for "date placed in service". After I change it to Oct 2019, depreciation period shows 30 years now.

Regarding to "date acquired", this matter to the Basis for depreciation. As I have paid capital gains to Canada for these rental properties when I become resident alien of US. I did not sell them, but just treated them as "sold" and "re-purchased" on the same day at fair market value. So I am thinking should I use the "sell" and "re-purchase" price as the Basis for depreciation? And use the date I become US tax resident as "date acquired"? I am afraid when I sell my rental property in the future, CRA and IRS will double tax me for the capital gain. :(

[Carl]

Your cost basis for the purpose of depreciation is the *LESSER* of what you "originally" paid for it when you purchased it, or it's FMV on the date placed in service. I have no doubt that the lesser amount is what you originally paid for it when you purchased it.

You can't "unbuy" and then "rebuy" something to yourself. Your original acquisition date remains the same. Doesn't matter if it was 50 years ago either.