Question

Depreciation on rental property improvements made after a few years rental start date.

Forum|Forum|5 years ago
January 25, 2021
1 reply
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Here is my Example:

Property put in service in 2018, with a basis of $275,000. So, for 2018 and 2019 a depreciation of $275,000 / 27.5 = $10,000 per year is claimed.

In 2020 we renovated the property and spent $82,500 in improvements.

Are any of these two methods valid for 2020 depreciation? If not what is the correct way of doing this?

1) Separate depreciations
- The annually $10,000 depreciation continues (started in 2018)
- A new separate depreciation starts in 2020: 82500/27.5 = 3000
So, total depreciation will be 13,000. In the next years, the first depreciation will end two years earlier.

2) Adjust basis in 2020 and start over as a new depreciation:
27[product key removed]+82500 = 337,500
337,500 / 27.5 = $12,273

Thank you!!

Not A Product Question

A

Anonymous_

Employee

@SF2 wrote:
In 2020 we renovated the property and spent $82,500 in improvements.

Are any of these two methods valid for 2020 depreciation? If not what is the correct way of doing this?

1) Separate depreciations
- The annually $10,000 depreciation continues (started in 2018)
- A new separate depreciation starts in 2020: 82500/27.5 = 3000
So, total depreciation will be 13,000. In the next years, the first depreciation will end two years earlier.

Yes, do not adjust the original cost basis but, rather, enter the renovation cost as a separate asset.

Your "1) Separate deductions" is the correct method.