Rental Property - Adjustment of Cost Basis

Forum|Forum|3 years ago
March 29, 2023
2 replies
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Bought townhome in 8/2009

Personal use from 8/2009 to 5/2014

Rental property/tried to rent from 5/2014 to 12/18 ($160 cost basis ($210 home less $50k for land)

Personal use from 1/19 to 10/22

Now back to rental as of 11/22 (with intention for long term rental)

How do I continue with straight line depreciation to take advantage of the full 27.5 year depreciation (I don't think it has to be 27.5 consecutive years but not sure)?

If I enter 11/1/22 as the new "put in service date" (I don't think I am supposed to put the prior rental in service date) do I also have to adjust the original cost basis ($160k) to back out the depreciation I took from 5/14 to 12/18?

Thank you.

Carl11_2

Employee

Your depreciation does not pick up where it left off. It starts over from year 1 using a new adjusted cost basis for the structure.

Basically, you have to subtract the total of all prior depreciation taken before from the total cost basis that was used when you rented it the first time. Then using that new cost basis depreciation will start over from year 1 for the next 27.5 years.

Take note that the cost basis of the land will not change. Only the cost basis of the structure is reduced by the total depreciation taken before.

rudolph0298Author

Thank you. I don't think it's applicable for me because I took the simplified home office deduction during my years of personal use, but out of my own curiosity if I had itemized the home office deduction instead of taking the simplified deduction would I also be subtracting that depreciation for my resulting adjusted cost basis?

Carl11_2

Employee

I don't think it's applicable for me because I took the simplified home office deduction during my years of personal use,

totally irrelevant. You stated, "Rental property/tried to rent from 5/2014 to 12/18" Therefore, you were required to take depreciation during that time. Weather you actually depreciated it or not doesn't matter. You are required to reduce your cost basis by the depreciation taken, or the depreciation you "should" have taken - whichever is higher.

The new information you provided of "home office" deduction using the simplified method has no effect on cost basis.

During the time it was a rental, there are no "options" to get around depreciation. You have to account for that depreciation weather you actually took it or not.

JulieS

Yes, it does apply to you because you said this was a rental from from 5/2014 to 12/18. The deprecation you took, or were allowed to take during the rental period, reduces the basis of your townhome.

When you take a home office deduction using the simplified method, your depreciation is considered to be $0. If you take your actual expenses, the depreciation reduces your basis and must be recaptured when the home is sold. Click here to learn more.

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