I had a new roof installed in 2016. I converted my house to a rental property in 2019. Should I claim depreciation on the roof starting in 2019? If so how? TurboTax only asks for improvements made in 2019.
No. The roof improvement was prior to the property being placed into service as a rental. You enter the residential real estate as an Asset to be depreciated less the land value. You either use the original purchase price plus the cost of any improvements or the Fair Market Value, whichever is less, at the time property was placed into service as a rental .
Thanks for the reply. Do I get to add the cost of the new roof as an "improvement" to the original purchase price? I would guess not since the house was personal property at the time of installation but just want to check.
@bsluder68 wrote:
Thanks for the reply. Do I get to add the cost of the new roof as an "improvement" to the original purchase price? I would guess not since the house was personal property at the time of installation but just want to check.
Yes the cost of the new roof is an improvement that you can add to the original purchase price, that is your Adjusted Basis on the home before it became a rental.
First, you deal with entering your initial purchase of the property, which I assume was a year prior to 2016. Next, you'll enter the roof as a 2nd asset in the "Assets/Deprecation" section. You'll indicate the roof was "pruchased/aquired" in 2016 on whatever date in that year. Next, you'll indicate the roof was placed "in service" as a rental asset, on the first day a renter "could" have moved in.
While the purchase/acquisition date for the roof and house may be different, the "in service" date for both assets will be the exact same date.
Both are classified as Residential Rental Real Estate and depreciated over 27.5 years.
IRS Publication 527 Residential Rental Property page 15 - https://www.irs.gov/pub/irs-pdf/p527.pdf#page=15
Basis of Property Changed to Rental Use
When you change property you held for personal use to rental use (for example, you rent your former home), the basis for depreciation will be the lesser of fair market value or adjusted basis on the date of conversion.
Fair market value. This is the price at which the property would change hands between a willing buyer and a willing seller, neither having to buy or sell, and both having reasonable knowledge of all the relevant facts. Sales of similar property, on or about the same date, may be helpful in figuring the fair market value of the property.
Figuring the basis. The basis for depreciation is the lesser of:
• The fair market value of the property on the date you changed it to rental use; or
• Your adjusted basis on the date of the change—that is, your original cost or other basis of the property, plus the cost of permanent additions or improvements since you acquired it, minus deductions for any
casualty or theft losses claimed on earlier years' income tax returns and other decreases to basis.
The problem with including the cost of the roof "as a part of" the cost of the property in one single entry in the assets/depreciation section, is that the program will incorrectly allocate part of the structure improvement cost, to the land. That's wrong. There is a way to "make" the program do it right. But it's basically going around your elbow to get to your thumb. It makes more sense and is absolutely correct (to the penny) to enter the property improvement as it's own physically separate asset.