Depreciating a home converted to rental

[lameri]

Hello,

If a home is converted into a rental, what should the basis be and when should the depreciation start?

For example:

The house was bought in year 2000 for $100K.

In year 2010, $5K go into making it a rental.

Should the 27.5 years start in 2010 and the basis be whatever is assed value in 2010?

Thanks.

[Anonymous_ · Accepted solution]

Depreciation begins on the date you place the house in service as a rental.

The basis for depreciation is the lesser of your adjusted basis or the fair market value on the date of conversion to rental use.

Note that it is the fair market value of the property, not the assessed value for property tax purposes.

In your example, you would either $105,000 or the fair market value in 2010, whichever is lower (presumably that would be $105,000).

[brpritt]

Your depreciation starts on the day you started making the improvements.  Your basis will be your purchase price plus any capital expenses from the day of purchase.  (Pave the driveway, add a swimming pool, upgrade the exterior, add a deck, etc. 

[lameri]

@Anonymous_ 

Thanks, what are the main considerations regarding whether it's good to have a low or high basis?

Also, what happens to a car used for the rental (part-time, less than 20%)? Does it need to be depreciated? Let's say the car was bought in 2007 for $3K. 

---

@brpritt wrote:

Your depreciation starts on the day you started making the improvements.  

---

@brp I thought it would be since the day it's put in service, like @Anonymous_ mentioned.

Thank you both for your help!