Rental depreciation - place in service 2nd time

Forum|Forum|3 years ago
October 9, 2022
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I bought a property in 2005. In 2006 I rented out the property (placed in service) and started taking depreciation on the property for 11 years (out of 27.5 years allowed). In 2017 I moved back into the property and live in the house for 4 years (no depreciation taken for ~ 4 years since it was owner occupied). In 2021, I moved out of the property and rent it out again. How can I start taking depreciation again on the property? How is it added in TurboTax? Does it start at 0 or pick up where it was left? Thanks in advance for your support and tips

Carl11_2

Employee

How can I start taking depreciation again on the property? How is it added in TurboTax? Does it start at 0 or pick up where it was left?

Depreciation will start over from year 1. However, you will need to reduce the cost basis in the structure only (not the land) by the total amount of depreciation already taken on the property for the 11 years it was a rental before. You will also have to keep track of that prior depreciation already taken, manually yourself. TurboTax can not, will not and does not "know" about the first 11 years of depreciation. This will come into play if/when you sell the property in the future, since all prior depreciation is recaptured in the year of sale and taxed at the ordinary tax rate up to a maximum of 25%. (Unlike capital gains which is taxed differently)

In the TurboTax program enter the new basis in the "COST" box. Then in the "Cost of Land" box you will enter the same value you used before. Then the program will start depreciation over from year one, using the new cost basis.

If you have other assets for the rental, you will do the same with them even if they have already been fully depreciated. This includes any assets you may have taken the Special Depreciation Allowance on, if you are placing those assets back in service now.