I converted a short term rental property to long term rental. How do I move the depreciation for schedule c to schedule e?

[RandyD]

I have several short term rental condos and have been using schedule C for my short term rental business.  I converted one of my condos over to a long term rental and filled out the schedule e form for this rental. I need to move the depreciation that is aligned with my schedule C over to the new schedule E.  How do I re-link the Asset Entry Worksheet to the schedule E form?

[MiriamF · Accepted solution]

The simplest way to deal with this problem is to treat the rental property as though this were a new business. You should assign a basis to the property that deducts any depreciation already accrued from the Schedule C use. Because deprecation is calculated on a month-to-month basis, the amount of depreciation you count towards Schedule C use is calculated according to the month you stopped using the property for Schedule C.

For example, assume you have a property that you have listed on your schedule C that has a basis (excluding the land) of 100,000. You used it on your Schedule C for 12 months in the past, and this year you converted it to a Schedule E rental property on September 1. Under the 27.5 year straight line depreciation, you would have already taken 20 months of depreciation (including $2424 for 8 months of 2016), or $6061. The property now has a basis of $93,939. When you write your Schedule E, list that basis for the structure value of the rental property. The 27.5 year depreciation schedule begins all over again. Your Schedule E depreciation would be 4 months' worth, or $1139.

More information about rental properties can be found in this TurboTax article.

[Sixgunsammy]

I know this question is 5 years old now, but just in case anyone stumbles across it I would like to point out that while it certainly makes sense to "prorate" the depreciation calculation according using the mid month convention for real estate, that is specifically not allowed per the Treasury Regs.  Specifically 1.168(i)-4(d)(3)(B).  

If there is a change in the use of MACRS property, the applicable convention that applies to the MACRS property is the same as the convention that applied before the change in the use of the MACRS property. However, the depreciation allowance for the year of change for the MACRS property is determined without applying the applicable convention, unless the MACRS property is disposed of during the year of change.

https://www.law.cornell.edu/cfr/text/26/1.168(i)-4

Specifically, for this question when property is converted to a use with a  shorter recovery period the taxpayer can either use the shorter period for the entire year OR the taxpayer can elect to ignore the change and continue to use the longer period indefinitely.

In the case of conversion to a longer recovery period, the taxpayer must use the longer period from the first day of the year.

More discussion can be found here:

https://www.thetaxadviser.com/issues/2012/oct/clinic-story-03.html