Percentage of business use for house depreciation in rental property conversion

[bugbash]

I bought my house in 2011 and converted it into rental on 4/28/2022 (in-service date). The house was rented out on 7/1/2022 (lease start date). It's a full-time rental, so personal use days is 0. Can I take full annual depreciation for the building, or just partial starting from in-service date? Currently after entering all my data, the resulting "Percentage of business use" (line 6) in my house/building's Asset Entry Worksheet is 68%. Thanks.

[DaveF1006 · Accepted solution]

Yes, your depreciation commences as soon as the property is placed in service or available to use as a rental. In this case, it will begin 4/28/2022.

[bugbash]

I think I made a mistake when answering TT about my percentage business use. I should have entered 100% instead of 68%, otherwise for in-service date of April '22, TT calculated: cost basis / 27.5 * 8mo/12mo * 68% so my depreciation is lower than it should have been. I shouldn't be doing the math for TT by entering 68% since the property is a full-time rental with 0 personal day use.

[AmyC]

Correct. It was 100% business use from the day rental use began.  It wasn't rented, but available for rent from 4/28. The program will do the math for you.

For more on rentals see:

IRS Pub 527 for Rental Property

Real Estate Tax Center

[bugbash]

Thanks. I was confused by TT's inconsistency in which it will do the math for this, but not the expense section (mortgage interest and property tax).

[Carl]

"Percentage of business use" (line 6) in my house/building's Asset Entry Worksheet is 68%

That's wrong. The program is asking you for percentage of business use "AFTER" the property was placed in service. That percentage should be 100% (One Hundred Percent) assuming the entire property was classified as a rental on the date you placed it in service.

The program "not you" will figure depreciation based on date in service at 100% business use from that date.

To confirm the first year depreciation is correct, see IRS Publication 946 at https://www.irs.gov/pub/irs-pdf/p946.pdf  Use the MACRS worksheet that starts on page 37. The table that applies for item 6 of that work sheet is table A-6 on page 72.