Partial Year Depreciation for Principal Residence Leased Condo

Forum|Forum|4 years ago
January 16, 2022
16 replies
75 views

I listed my principal residence condo for rent on April 29, 2021 and left it unoccupied until it leased for 5 months from Jun-Oct 2021. In November, I reoccupied the condo as my principal residence and intend to do a partial year lease again this year.

On the asset entry worksheet, I entered 4/29/2021 as the date placed in service and also entered 51% as the percentage of business use on line 6 (153 days leased + 33 days unoccupied divided by 365).

So, the depreciation amount is correctly calculated - 1yr / 27.5yrs x .7083 MM convention placed in service 4th month = .02576 of business use basis amount. I assume this represents depreciation from April MM to the end of the year. Since I reoccupied the condo in November, does the depreciation need to be adjusted or is that already accounted for in the 51% business use factor?

Carl

Level 11

For starters, your math is wrong for figuring depreciation. That's not how depreciation is figured for residential rental real estate per IRS Publication 946 at https://www.irs.gov/pub/irs-pdf/p946.pdf. Remember, when it comes to taxes, if it looks easy then you're doing it wrong. 🙂

Use the worksheet begining on page 38 and continued on page 39 of the above referenced document. For residental rental real estate (including renting part of your primary residence) use Table A-6 on page 73.

Now, when you take a property out of service, that stops depreciation. But you already know that. Here's where you need clarification.

When you place the property back in service, you must first reduce the cost basis of the *DEPRECIATED ASSETS ONLY* by the amount of depreciation you have already taken. Then using that new reduced cost basis the depreciation starts over from day one for the next 27.5 years. Keep in mind that since land is never depreciated, you will reduce the cost basis of the "STRUCTURE ONLY". The cost basis of the land will not change.

barrons185aAuthor

Level 2

No wonder they call you the Champ!

I went back and verified Table A-6 and it confirms the 2.567% factor directly - no need to calculate it. I imputed the factor from what Turbotax showed as the depreciation amount compared to the basis and this just further confirms TurboTax is correct.

And so I think basically you are saying that this year when I calculate 2022 depreciation, it will consider what looked to me like excess depreciation in 2021 by reducing my basis - basically self correcting as we go. If I’m misunderstanding, please let me know because this also looks too easy! 😀

Can you also please comment on the 51% business use input on line 6, where I added the 33 days the condo was vacant to the 153 days it was leased? I did not use this for allocating expenses between personal / rental on Schedule E, but Pub 527 says that ordinary and necessary expenses including depreciation can be deducted when the property is vacant and I assume this is the way to reflect that for depreciation.