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Depreciation - Converted from rental to personal

17 posts in this topic

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Clents got married last year. He has house, she has house. They move into his house and start renting her house 1/1/10. Renters trash the place and move out 8/15. They fix her house back up and decide to move into it. His house is empty now.

They should get the 8 months of depreciation on the home for the period of rental. Shouldn't they? How do I make ATX give them that amount and then convert it to a personal residence again?

I am away from my office without research material.

Thanks

Tom

Lodi, CA (but in Fresno today)

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Posted · Report post

Never mind. I got it.

Tom

Lodi, CA (but in Fresno today)

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Posted · Report post

Never mind. I got it.

Tom

Lodi, CA (but in Fresno today)

Tom, for those of us who don't know the answer to your question, would you tell us what you figured out?

Thanks, Lynn

Lynn Jacobs, EA, NP

Kenner, La

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Posted · Report post

For an asset placed and taken out of service in the same year, I believe the depreciation equals zero.

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For an asset placed and taken out of service in the same year, I believe the depreciation equals zero.

Hi Ranger, that part I am well aware of.

I just wondered if Tom had found another solution to his dilemma.

Thanks, Lynn

Lynn Jacobs, EA, FNTPI, NP

Kenner, LA

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Posted · Report post

As I understand it, the house was placed in service and taken out of service in the same the year. So the program correctly disallowed depreciation.

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Posted · Report post

True for personal property, but not for res rental property. Look at Pub 946, the Section on Sale or other Disposition before the recovery period ends.

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Hi Ranger, that part I am well aware of.

I just wondered if Tom had found another solution to his dilemma.

Thanks, Lynn

Lynn Jacobs, EA, FNTPI, NP

Kenner, LA

I finally decided to follow the program and went to the disposition tab and filled it out correctly using the proper dates and the program did it for me. Adjusted the depreciation to the right amount and put it on the Sch E. Did not report on the 1040 as a sale. Sometimes you just need to stop trying to out think the software. It is kinda embarrassing that I even posted this.

Tom

Lodi, CA

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Posted · Report post

Yeah, and we always feel silly when we try to force it do something, only to realize later that the program would have done it for us with much less effort! Those of us who started out doing returns by hand with just a ten-key are the most prone to that, I expect.

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KC, can you point out the section you referred to?

Page six of pub 946 say “property placed in service and disposed in the same year.” It makes no distinction between real and personal property.

Pub 946, page six:

“Even if the requirements explained in the preceding discussions

are met, you cannot depreciate the following property.

Property placed in service and disposed of in the same year….”

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Ranger, that Pub does not cite a Code section for one good reason, there is no such section to cite.

Here is a good discussion of the subject, which I found very interesting. The author takes the position that the Code does not prohibit it for any property. And since the only reference found was to the "40% rule" and Real Estate is specifically exempted from the "40% rule", that tends to support my position, IMHO.

http://tinyurl.com/4ueh5rn

Years ago, I searched Tax Court rulings on this subject, and found something indicating that the court had allowed deprciation on real estate bought and sold in the same year, but I don't remember where I found it, and don't have the time to look for it again. I do, however, know that most professional tax software does not calculate it for personal property, but does for real estate, which I presume rests on the same basis as what I found years ago.

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Real property uses mid-month convention and personal property uses half-year convention, I think this figures into it.

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The 2009 CCH Master Depreciation Guide discusses this issue on pages 289 and 290. They refer to Reg. Section 1.168(i)-4©, which states about halfway through: “No depreciation deduction is allowable for MACRS property placed in service and disposed of in the same taxable year.”

It appears the statement in Pub 946 comes from the Reg. The CCH Master Depreciation author notes that in the past depreciation was allowed for real property placed in service and disposed in the same year.

PS: I don't know how those "faces" ended up in the reg posting below!

***************************

Reg. Section 1.168(i)-4©

Changes in use

© Conversion to personal use. The conversion of MACRS property from business or

income-producing use to personal use during a taxable year is treated as a disposition of

the property in that taxable year. The depreciation allowance for MACRS property for the

year of change in which the property is treated as being disposed of is determined by first

multiplying the adjusted depreciable basis of the property as of the first day of the year of

change by the applicable depreciation rate for that taxable year (for further guidance, for

example, see section 6 of Rev. Proc. 87-57 (1987-2 C. B. 687, 692) (see §

601.601(d)(2)(ii)(B ) of this chapter)). This amount is then multiplied by a fraction, the

numerator of which is the number of months (including fractions of months) the property

is deemed to be placed in service during the year of change (taking into account the

applicable convention) and the denominator of which is 12. No depreciation deduction is

allowable for MACRS property placed in service and disposed of in the same taxable

year. See §§ 1.168(k)-1T(f)(6)(ii) and 1.1400L(B )-1T(f)(6) for the additional first year

depreciation deduction rules applicable to property placed in service and converted to

personal use in the same taxable year. Upon the conversion to personal use, no gain, loss,

or depreciation recapture under section 1245 or section 1250 is recognized. However, the

provisions of section 1245 or section 1250 apply to any disposition of the converted

property by the taxpayer at a later date. For listed property (as defined in section

280F(d)(4)), see section 280F(B )(2) for the recapture of excess depreciation upon the

conversion to personal use.

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Posted · Report post

The emoticons showed up because the B) emoticon is made by typing a capital B followed by a ). So when typing a cite that uses a capital B, you need to insert a space after the B, or else you need to turn off the emoticons entirely.

B)

PS, I removed them for you by inserting the space for you.

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Posted · Report post

Can I chime in here on the asset bought sold same year depreciation topic? Yesterday I was doing a 1065 -they bought & sold a racehorse in 2010. ATX is calculating depreciation on this asset - I didn't think it should and have overridden it. Is there something I'm missing?

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Posted · Report post

>>asset bought sold same year<<

According to Pub 946, "To be depreciable, property must have a useful life that extends substantially beyond the year you place it in service." Quickfinder says baldly, "No depreciatiation deduction is allowed for property placed in service and disposed of in the same year." (Quickfinder says property converted to personal use is treated as a disposition for calculating MACRS, though recapture doesn't apply until it is actually sold or junked.) There are special rules for ACRS property, like kind exchanges, and involuntary conversions.

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Then I guess I need to report this to ATX...it's a glitch in the 1065 program.

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