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Level 1

Do you have to record depreciation on a flip? Also, if you sell a rental property halfway thru a year, do you record the depreciation in the year that its sold?

 
4 Replies
Level 7

Do you have to record depreciation on a flip? Also, if you sell a rental property halfway thru a year, do you record the depreciation in the year that its sold?

There is no depreciation on a property that is bought and sold the same year.  Also, there is no depreciation on an investment property (the flip) if it was never rented.  All costs of upgrade, capital improvements, etc, will be added to the original purchase price to determine gain or loss.

Yes, there is depreciation for the portion of the year a rental is in use before the date of sale in any year.  Depreciation on a rental uses a straight line method for each month in service and a half a month for the year it is removed from service (sold).  TurboTax will do this calculation when you select "sold" as one of the situations and then t will also walk you through the sale.

Level 2

Do you have to record depreciation on a flip? Also, if you sell a rental property halfway thru a year, do you record the depreciation in the year that its sold?

Can you please point to any IRS pubs or some other authoritative text? I can't find any but I agree with the answer

Level 20

Do you have to record depreciation on a flip? Also, if you sell a rental property halfway thru a year, do you record the depreciation in the year that its sold?

I had the following bookmarked.

 

"All costs of upgrade, capital improvements, etc, will be added to the original purchase price to determine gain or loss."

 

Treas. Reg. §1.1016-2 Items properly chargeable to capital account.

(a) The cost or other basis shall be properly adjusted for any expenditure, receipt, loss, or other item, properly chargeable to capital account, including the cost of improvements and betterments made to the property.

 

 

"Yes, there is depreciation for the portion of the year a rental is in use before the date of sale in any year."

 

Treas. Reg. §1.167(a)-10 When depreciation deduction is allowable.

(b) The period for depreciation of an asset shall begin when the asset is placed in service and shall end when the asset is retired from service. A proportionate part of one year's depreciation is allowable for that part of the first and last year during which the asset was in service.

 

 

"There is no depreciation on a property that is bought and sold the same year."

 

Publication 946:

Even if the requirements explained in the preceding discussions are met, you cannot depreciate the following property.

  • Property placed in service and disposed of in the same year. 

See https://www.irs.gov/publications/p946#en_US_2018_publink1000107322

 

Publication 527:

See https://www.irs.gov/publications/p527#en_US_2018_publink1000219031

 

 

Finally, if houses are "flipped" on a regular and consistent basis in the ordinary course of business, the houses are considered inventory and, as such, are not allowed a deduction for depreciation per Treas. Reg. §1.167(a)-2

 

 

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Level 11

Do you have to record depreciation on a flip? Also, if you sell a rental property halfway thru a year, do you record the depreciation in the year that its sold?