I thought the depreciation for real estate rental property was based on 27.5 years not 39. Is this correct?

[AnnetteB6]

It depends on whether the real estate rental property is residential or not. 

Residential rental property has a depreciation recovery period of 27.5 years.  Nonresidential rental property has a depreciation recovery period of 39 years.  

[jmoose]

I converted the main part of my home (lived there 11 years) to a Vacation Rental in 5/2020. I am using the smaller part (a cottage) for personal use but do not live there at of 5/2020. I was told to set up my Vacation Rental as a Schedule C Business. It is only offering me to choose the property as a Non-residential Real Estate depreciated over 39 vs 27.5 years. Is this correct? Should I set this up differently?

Next question, Since both my husband and I own the house, should I set this up with each of use having a separate business (split income, expenses and asset on schedule). Told it would reduce SS since he has a job that maxes out on SS.

Thanks!

[DianeC958]

Yes, you are correct you can depreciate the Rental Property over 27.5 years not 39

years.

Since this is a rental property you will save yourself the Social Security and Medicare tax if you set it up in the Rental Section of TurboTax.

Rental Properties are passive income and are not charged Social Security and Medicare Tax on the profits.

To enter your rental:

1. In TurboTax, search for rentals and select the Jump to link at the top of the search results.
2. Answer Yes to the question Did you have any rental or royalty income and expenses in 2019 for property you own?
3. Follow the on-screen instructions as you proceed through the rental and royalties section.
   • We'll ask you to enter general information about your rental (like description, address, and ownership percentage).
   • Eventually, you'll come to the Rental Summary screen, which is where you enter your rental income and expenses, assets and depreciation, and vehicle expenses.

@jmoose 

[jmoose]

So to get the 27.5 yr depreciation I need to set up on a Schedule E? I asked a CPA about this since my cottage (now private use) used to be rented out as a B&B (schedule E) and he said I needed to switch my new rental to Schedule C business. I have no idea what is correct. I manage other B&Bs for other people under a management company and report that as business income on Schedule C.

CPA said something about offering additional services to be a business. If I offer additional services under my management Company (websites offers links to things to do /purchase), I was thinking I could put property under Schedule E like you recommend and the service part would be tied to my managment company.  Right now I charge clients 25% of rentals to manage property, but have not charged my own property since I own both. Should I just start paying my management company a 5-10% to cover services of my rentals and only that part of the income would be subject to SS and medicare?

THANK YOU!

[Carl]

If this is "truly" a vacation rental, then that means you are providing your short term tenants recurring services that are "directly beneficial" to those tenants. (housekeeping/maid services and the such). That makes it a SCH C business. A SCH C real estate asset is depreciated over 39 years. Period. End of that story.

Otherwise, if this is a SCH E rental and it's physically located in the United States, it gets reported on SCH E and is depreciated over 27.5 years. Period. End of that story.

If this is a foreign rental property that qualifies as SCH C income and is reported as such, then if it was placed "in service" in 2018 or after it gets depreciated over 40 years. Period.

If this is a foreign rental property that qualifies as SCH E income and is reported as such, then if it was placed "in service" in 2018 or after, it gets depreciated over 30 years. Period.

[AmeliesUncle]

As Carl pointed out, if you provide "services" to the  tenants (such as meals or maid service), it goes on Schedule C, and would be depreciated over 39 years (assuming it is in the US).  If you do not provide "services", it goes on Schedule E, and it would be depreciated over 27.5.

[jmoose]

Assuming I move to Schedule E, do I split into 2 rentals for a Qualified Joint Venture since my husband and I both own the property?