Should I depreciate the portion of a residential rental buyout of a partner when I will convert the property to my residence?

[corinneL]

We own a residential rental with a partner.  It was acquired through a 1031 exchange 2 years ago. This year we decided to buy out our partner with cash with the intent of converting the rental to our personal residence after the 2 years the exchange requires it to be a rental.

4/23-1031 exchange was completed.  House was rented or available for rent from 4/23 through 4/25.

7/24- We decided to buyout our partner with cash.  We now own 100% of the rental and it is rented through 4/25. We decided we would convert this rental to our personal residence after the tenants move out in 5/25..

For 2024 taxes, I am depreciating the original portion from the 1031 (relinquished property and excess basis). 

Should I depreciate the amount we paid our partner to acquire the remaining amount of the house since we have decided to occupy the house after the tenant lease is up. 

[DianeW777]

Yes. You should add the price you paid as another asset for the same house for 2024. It will be placed in service on the date of the purchase. Do not add it to the half of the house you already list as an asset. Once you convert the property to personal use as your home, you will indicate that in the rental assets.

Keep all of the records to show your actual cost (begins with the house exchanged using 1031, and this purchase) and all of the depreciation you used on your tax returns. This information will be needed should you sell in the future and will be a taxable event for any gain.