Can I use 40 year depreciation on my condo rental? My taxes are zero with or without the deduction so I want to take the least amount of depreciation allowable.

[LeonardS · Accepted solution]

No, you can not depreciate a condo over a 40 year period.  IRS regulations require a depreciation schedule of 27.5 years for condos.  Be sure to take depreciation each tax year. If you sell the condo, the IRS puts depreciation back into the cost basis of the property whether you exercised this tax break or not.

[Anonymous_]

Residential rental real estate located in the United States is depreciated over a 27.5 period under GDS.

You cannot use a 40-year recovery period.

[dllr597387]

Thank you.  I guess the IRS wins by taxing me 25% on the recapture and forcing me to take the depreciation when my tax is at 0%.

[Anonymous_]

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@dllr597387 wrote:

Thank you.  I guess the IRS wins by taxing me 25% on the recapture and forcing me to take the depreciation when my tax is at 0%.

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Recapture is taxed at your ordinary tax rate up to a maximum of 25%. 

[AmeliesUncle]

If this is the first year of it being rented, you can elect to use the Alternative Depreciation System (ADS) which would use 30 years (it used to be 40 years, but they changed it a few years ago).

https://www.irs.gov/publications/p946#en_US_2020_publink[phone number removed]

[dllr597387]

I did not remember seeing that as an option when doing my taxes from TurboTax.  I’ll review the rental income again.  

[dllr597387]

Considering I am looking at a sizable gain already, by the time I sell I will be at a minimum 22% bracket.  Still a major win for the IRS.  Unless I am missing something, for my situation, it seems criminal.

[Anonymous_ · Accepted solution]

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@dllr597387 wrote:

I did not remember seeing that as an option when doing my taxes from TurboTax.  I’ll review the rental income again.  

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That would be a good idea.

However, that recovery period is not an option in TurboTax. Unless you indicate that the property is located in a foreign country, the program will default to the 27.5 year recovery period. I do not believe that can be changed without doing an override in Forms Mode.

Regardless, the extra 2.5 years will most likely not make a significant difference.

[AmeliesUncle]

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@Anonymous_ wrote:

I do not believe that can be changed without doing an override in Forms Mode.

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That last I checked, when entering the type of asset, you can select "other" asset, then "other" again (I don't quite remember the exact wording), then that will let you somewhat manually select things (select ADS, change other assets from 200% DB to Straight Line, etc.).

[Anonymous_]

The screenshot below depicts what happens when you select "Other property " and then "Other asset type" in the 2021 product.

[Anonymous_]

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@AmeliesUncle wrote:

That last I checked, when entering the type of asset, you can select "other" asset, then "other" again (I don't quite remember the exact wording), then that will let you somewhat manually select things (select ADS, change other assets from 200% DB to Straight Line, etc.).

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Also, entering this manually (as ADS 30-year, SL) in Forms Mode with a U.S. address results in an error condition.

[AmeliesUncle]

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@Anonymous_ wrote:

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Also, entering this manually (as ADS 30-year, SL) in Forms Mode with a U.S. address results in an error condition.

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I'm not certain, but I don't think it is a true error.

In ProSeries (TurboTax's cousin), it shows up red as if it is an error, but it actually is not an error (it doesn't trigger the error alert and can be e-filed without disabling error-checking).  So I would GUESS that TurboTax could still e-file it without a problem (but that is only a GUESS based on how ProSeries behaves).

[Anonymous_]

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@AmeliesUncle wrote:

I'm not certain, but I don't think it is a true error.

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Perhaps that is the wrong term.

In a test return I set up in TurboTax Home & Business, I cannot select a 30-year recovery period without first indicating the property is located outside the U.S.

If I try to do so, the program prompts me for an override. I then have to enter "30" on the Asset Worksheet manually.

[AmeliesUncle]

In ProSeries, you need to change the "Depreciation Method" (SL, 200%DB, etc.), and change that to "Alternate Method" ("ALT"), and that automatically changes it to 30/40 years.