Starting over on depreciating rental property question..

[CaddyGrn]

My situation might be a bit tricky.  We live in a home that had the upstairs converted to 2 apartments a long time ago (before we bought the property).  We have been here for over 20 years so the 27 years of depreciation will end before too long... I have one apartment that we essentially used for personal matters for the 2022 year.  I understand that I can reinstate it back into the rental property but I will need to establish a new basis for that unit.  We still have a mortgage, taxes, etc.  (due to a refinance) so even though the basis might be less, it would be nice to continue to be able to create a new basis.  My understanding is once I reinstate that apartment I can once again depreciate it, etc. for another 27 or so years.  or until the depreciation runs out?  Even then can I deduct taxes, expenses for repairs, etc.?  I would "assume" I could continue to use the basis previously set up for the other apartment that is continually rented.

Thank you in advance for your response.

[DianeW777]

No, you cannot start the depreciation over again.  If I understand you took the one apartment out of service for personal use in 2022.  You can, again, use it as a rental.  You would use the same asset as though it was never taken out of service. The basis doesn't change and you do not start another 27.5 year recovery, you start where you left off.  

• Note:  TurboTax does not know that the property was out of service for a period. For this reason you must remember that you didn't actually use depreciation for 2022 (based on your comment).  This depreciation will matter when the property is sold.

Once the property is placed in service for rental activity, you can take any operating expenses to maintain the property.

The apartment that was never converted to personal use would continue as usual and nothing changes to the depreciation.  It continues on until it is used up.  

For either apartment, if you spend money to improve it, such as a remodel, the amount you spend will become an asset just like the original cost of the apartment section.  It would have a new date placed in service once the work is complete. It would also have a 27.5 year life.

[CaddyGrn]

Thank you for your response.  I might need to do some research on this one... previously I asked this question and received this answer:  

 tagteam

Level 15

‎September 5, 2021 11:45 AM

@CaddyGrn wrote:

...So does that mean we would have another 27.5 years to depreciate the building even if the cost basis is reduced?

Yes. When you take residential rental real estate out of service and then place it in back in service, your recovery period (27.5 years) starts over.

Of course, generally, your basis for depreciation will be reduced.

I will see if I can find an actual IRS document that clarifies this.

[JulieS]

No, you do not re-establish a new basis. When a rental property is idle for a period and then resumes rental use, the IRS says to continue to claim the depreciation during the idle period. 

Excerpt from Publication 527:

"Idle Property - Continue to claim a deduction for depreciation on property used in your rental activity even if it is temporarily idle (not in use)."

The only time you have some new basis is if you add to or improve the property such as a remodeling project, or an addition. In that case the expense is depreciated as a new asset. Click here to read the applicable section of Publication 527.