Determining in-service date for depreciation calculation

[Anonymous]

My tenant's rental contract started on 12/21/2021. Because it was rented out for less than 15 days in 2021, I didn't report any rental income or expenses for 2021. I am counting 1/1/22 as the in-service date for depreciation calculation. And I should deduct the whole year (3.636%) of depreciation, NOT the 3.49% depreciation usually listed for starting sometime in January. Am I doing this correctly? Thanks

[Anonymous_ · Accepted solution]

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@Anonymous wrote:

Am I doing this correctly?

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That does not appear to be the case. 

Since you converted the property exclusively to rental use in 2021, you should most likely have reported the income and expenses during the rental period for that year as well as reported the depreciation deduction for the appropriate period (i.e., depreciation would have begun on 12/15/2021 since the mid-month convention is used). Section 280A(g) usually applies to property used as a residence before and after rental periods and not merely after the property is converted to rental use.

If you want to indicate that the property was converted to rental use on 1/1/222, then the program is going to use the mid-month convention and depreciation will show the property as being placed in service on 1/15/22.

[Anonymous]

Thank you!

So if the rental was converted on 11/22/21 and listed on 11/24/21, and lease agreement started on 12/21/21, is the "days rented out" 38 days or 11 days? Depreciation schedule would start on 11/24/21? And I can deduct any expenses that I paid on and after 11/24/21?

[Anonymous_]

Schedule E (the instructions) directs you to input the actual number of days rented (as well as personal use days, which should be 0 (zero) after conversion to rental use. It actually makes no difference in the program provided you enter the correct date for when you began using the property as a rental.

[Anonymous_]

You can deduct typical rental expenses beginning on the date the property was available for rental use. 

If you made it available on 11/22/2021, then you can use that date, which is not necessarily the date it was listed (i.e., if you would have accepted a tenant (renter) on that date, you can deduct rental expenses).