Reporting assets for depreciation when a new rental property was built on the site of an old rental property

Forum|Forum|1 year ago
September 6, 2024
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We had a rental property for 15 years that we demolished and built a new house and ADU on the same site. So how do I stop the depreciation on the old property and add in the "improvements" which is the new build?

The old property was demolished Jan 2022 and we finished the new house June 2023 and rented it right away (long term rental). The ADU wasn't finished until 2024 and is operated as a short term rental.

Thanks.

Anonymous_

Employee

You can convert the property to personal use to stop depreciation and then add.

I'm going to page @AmeliesUncle for input on the ADU, et al.. Please check back.

AmeliesUncle

Do you have separate costs for the construction? If so, just treat it as a completely separate rental property and use the cost for the construction.

Is the ADU a separate building? Generally, a short-term term rental is usually depreciated over 39 years (long-term rental buildings are usually depreciated over 27.5 years; you may need to tell TurboTax it is a Commercial property to get it to use 39 years). If it is the same building as the long-term rental, it gets a bit more tricky and perhaps the entire building may need to be depreciated over 39 years.

tracy_robertsAuthor

Thanks for your answer. So basically I convert the existing rental to personal property and then add 2 new rental property assets - the house and the ADU separately using the cost of construction of each unit as the asset cost.

The ADU is separate but it may not always be a short term rental. What about the scenario that it's sometimes a short term and sometimes a long term rental? Couldn't I depreciate over 27.5 years in that case?