Question

depreciation of a no interest loan for rental property

Forum|Forum|5 years ago
June 17, 2020
1 reply
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I updated the heating system on my rental property. I took a seven year no interest loan. Do I take the depreciation now for the full amount of the loan or do I deduct the yearly cost over the seven years?

Carl11_2

Employee

Borrowed money is never deducted from taxable income. It's not your money. It never was, is not now, and never will be.

If you used the money to improve the property, (and you did) then your property improvement gets entered in the assets/depreciation section and depreciated over time. The entire cost is used. The new heating system is without question "a physical and permanent part of" the property now. So it gets classified as residential rental real estate and depreciated over time. When you purchased or paid for it does not matter. What matters is when you placed the asset "in service". That's when depreciation starts. The asset is considered to be in service on the first day it was available for use by a tenant. It does not matter if you actually had a tenant in the property on that date, or not.