Form 4562 - Business Use Percentage does not go up

Forum|Forum|1 year ago
March 25, 2025
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Hello,

I just checked my Form 4562 and noticed that the business use percentage has not increased since I started listing the property as a rental. I have correctly answered the TT question, indicating that the property was fully rented in both 2023 and 2024. Should the percentage be adjusted to 100% in 2023 & 2024?

Purchased foreign property in 2017 but starting rental in 2022.

YR 2022 - started rental in 08/2022 - form 4562 business use 42%

YR 2023 - fully rented - form 4562 bus use 42%

YR 2024 - fully rented - form 4562 bus use 42%

TIA for your help!

DianeW777

No, the straight line method means just that. You will have the same amount of depreciation each year over the life of the asset. The amount at 100% would be the cost basis divided by 40 years in your situation.

Your property in a foreign country is depreciated over a 30-year or 40-year period, depending on when it was first placed in service for rental use. Instead of the 27.5 year for US residential properties the period is different.

Prior to 2018, depreciation of foreign residential property was limited to 40-year period.
2018 and Future: New assets placed in service now get the lower 30 year period.

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FortuneCookiesAuthor

@DianeW777,

It seems that the business use percentage was fixed (prorated) during the first year of rental usage and remains the same each subsequent year. Is that correct? This approach results in only 40% of the depreciation amount being allocated. Can the percentage be adjusted?

DianeW777

No, that is not correct. You likely need to change the percentage of use to 100% since it was fully rental in 2023. You should indicate it was rented all year at fair rental value and, if you altered the cost of the rental asset initially, enter 100% of the cost of the home in the asset section (if not already at 100%).

You have two options for 2023 and/or 2024.

You could amend 2023 to change and correct the depreciation. Continue with the 2024 with the corrected changes above and file it even though the 2023 is not yet amended.
1. How do I amend my federal tax return for a prior year?
File Form 3115 to capture the missed depreciation in 2024 (some what more complicated).
1. What should I do if I didn't take depreciation on my rental property?

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