Your overall rental loss may be limited or suspended and carried over, but the amount of depreciation you report depends on the asset and can result in an overall activity loss. Review your rental entries, especially the entries regarding personal use days.
You start taking depreciation deductions not when you buy it but when you begin using the property to generate rental income. The IRS refers to this as putting the property "in service."
Depreciation continues until one of two things happens:
- You have deducted your entire "cost basis" in the property. In most cases, your cost basis is what it cost you to acquire the property, including certain taxes and fees paid at settlement, plus any improvements to the property.
- You remove the property from service—meaning, you stop using it to generate income. This may be because you sold the property or just decided to stop renting it.
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Did you enter any personal days?
If so, was it 100% personal then converted to 100% rental (expected to be rented for a year or more)? If so, you need to enter ZERO personal days. You enter the number of personal days AFTER it became a rental property.
If you are renting at below FMV and/or to family, then that would be correct. Your losses are limited to your rental income in that scenario. Otherwise, once your losses get your taxable rental income to zero (and they will), the excess is carried over. You can see the carry over amount on the IRS Form 8582, worksheet 6, column b.
Thank you for taking the time to respond. Having given it further thought, my assumption was that depreciation was being limited to the minimum amount needed to eliminate a profit, with unneeded depreciation carried over. The unit is being rented at above FMV.
Thanks again for responding.