Can I suspend depreciating a rental property that I choose not to rent one year. What should I do ?

[jff35292]

I am offering a summer season property for rent. It is fully rented this coming 2019 season however next year 2020 I think I may live there and not rent it at all for one year.  How does this situation get treated regarding depreciation etc. ?

[MinhT]

If you use your rental home as a second home or vacation home in 2020, then no depreciation is allowable for 2020. Depreciation will start again if and when you rent that home again.

[odnok2001]

Thanks MinhT. I have this exact situation. I had a rental property that I lived in for all of 2018. In 2019, the property was rented out all year. Will the depreciation for 2019 be the same as the depreciation for the prior years (2017 and before)?

[DianeC958]

Yes, since you have using the property again as a rental the depreciation amount will be the same as the prior years.

Depreciation for a rental property is straight line depreciation where the cost of the rental is divided over 27.5 years to give you an amount you can take for depreciation each year.

Depreciation of Business Assets

@odnok2001 

[odnok2001]

Thank you! Turbo Tax was recalculating depreciation to make up for the year with no depreciation. 

I will depreciate this year at the same amount as prior years (before we lived in the rental for a year).

[AmeliesUncle]

If you took it out of service for a year, then you need to re-start the depreciation using (1) the NEW "placed in service" date and (2) the NEW Adjusted Basis (or Fair Market Value, if lower).

[Carl]

Simply convert the property to personal use, and depreciation stops on that date of conversion.

Work through each and every asset listed in the Assets/Depreciation section and select YES for "I stopped using this property in 2019". When presented the "Special Handling Required?" screen, read the options there to understand why I am telling you to click YES. Then click YES. Finish working through the asset, keeping in mind you have to do this for every single asset listed. That will do it and stop depreciation.

Turbo Tax was recalculating depreciation to make up for the year with no depreciation.

Don't know why (programming error? Programming limitations?) but the program as designed is not capable of "correctly" handling depreciation when a property is switched back and forth between rental and personal use. Never has been. One can do a manual over ride. But when you over ride, you can't e-file. You have to print, sign and mail the return to the IRS.

One way around this is, (assuming it's going to be personal use for the entire calendar year) is to leave it classified as a rental. Then claim 1 day of rental use, 364 days of personal use, and .1% of business use. Claim no income and no expenses of course. Then, if any depreciation is taken for that one day of business use at less than 1%, it will be minimal (only a few bucks.)

 This keeps things on track when, the next year you return the property to 100% business use.

[Carl]

Depreciation for a rental property is straight line depreciation where the cost of the rental is divided over 27.5 years to give you an amount you can take for depreciation each year.

The above has a tendency to be misleading.  Depreciation is not equally divided over all 27.5 years.  The method to use is covered in IRS Publication 946 at https://www.irs.gov/pub/irs-pdf/p946.pdf

For residential rental real estate use the MACRS work sheet on page 36 and Table A-6 on page 70.

Your first year depreciation is based on what month you place the property in service.

Years 2-9 are figured at 3.636% of the cost basis assuming it was classified as a rental the entire year.

Years 10 and up the percentage is different for each year alternating between 3.637% in even years and 3.636% in odd years on the assumption the property is classified 100% business use for every day of the entire year.

Depending on the value of the depreciable property, that .001% difference can matter, even though for most it won't be more than a buck or two difference most likely.

Basically, if you take the property out of service at the end of say, year 6, when you place the property back in service years later, you'll "pick up" with year 7 of being "in service". The program itself doesn't seem to be capable of correctly handling a gap in depreciation without the user manually intervening. (At least, from what I can find.)

[wleuter]

Hi @Carl 

I was your post below. I just want to know if it means the total depreciation period like 27.5 years does not include personal use time. Like the way you mentioned below, if I only have one day rental, only this one day added to 27.7 years calculation, not the whole year, right?

One way around this is, (assuming it's going to be personal use for the entire calendar year) is to leave it classified as a rental. Then claim 1 day of rental use, 364 days of personal use, and .1% of business use. Claim no income and no expenses of course. Then, if any depreciation is taken for that one day of business use at less than 1%, it will be minimal (only a few bucks.)

[split]

What is the impact of suspending renting and claiming 0 days of rental use and 0 days of personal use?

Does depreciation still occur?

Any concerns?

A previous post spoke of indicating 1 day of rental use.  Well, that can't be good...clearly 1 day makes no sense and seems like a red flag

[JamesG1]

If you intent is to suspend renting but return at a later time, I recommend the procedure outlined by Carl above.

Convert the property to personal use by selecting Yes at the screen Tell us more about this rental asset and the question The item was sold, retired ... converted to personal use..

At the screen Special Handling Required, select Yes because you converted the asset to 100% personal use.  A small amount of depreciation may be computed.

Under Rental type and usage, claim 1 day of rental use and 364 days of personal use.

Claim no rental income or rental expense.

This keeps the rental information intact for when you need to convert the rental property back to full rental status.

@split 

[split]

I'm concerned about the notion of making it for personal use.  What are the ramifications of that.....I believe that this wold then block the use of a 1031 exchange.   Since the property is in a different state, I wonder how making it for personal use might come back to haunt me.

I never plan to sell the property.   I may in the future rent it out, or exchange it via 1031.    My heirs will end up with property or its exchanged successor.  So the depreciation is likely a don't care

[DaveF1006]

Yes, you are correct that once the property becomes personal use property, you would not be able to use it in a 1031 exchange. Changing this to personal property should not be a factor if it is in a different state but sometimes, state tax codes could vary from state to state.

If you decide to sell the property, the deprecation that you previously deducted needs to be recaptured thus the basis of your home is reduced by the amount of depreciation taken while being rented. However once your heirs inherited the house, and if they decide to sell, they are not required to report depreciation recapture.