Rental Depr Question

[Terry D EA]

Client had rental property that I began depreciating back in 2011. The property was rented until he got divorced in 2016 and moved into the property. Client is now remarried and began renting the same property in 2022. Numerous capital improvements. Is my thinking correct. Start the depreciation for TY 2022 using the original cost plus capital improvements, minus accumulated depreciation to arrive at the now depreciable basis. Is this correct or am I missing something? Start with 27.5 years or use the remaining years left? Thanks!

 

 

[DANRVAN]

5 hours ago, Terry D EA said:

Start with 27.5 years or use the remaining years left?

 

I don’t think there is any authoritative answer to your question, but I believe you should pick up where you left off in the past; including cost and accumulated depreciation.  That way you will have a record of accumulated depreciation if the property is sold in the future.

 

By using the remaining depreciation life, your client will receive a larger deduction per year than if you start over with 27.5 years.

 

As for as the improvements go, I would list them separately and begin depreciation on the date the house was put back in service as a rental.

[Gail in Virginia]

From what I recall, I would think the depreciable basis would be the lesser of the adjusted basis in the house (cost + improvements - previous depreciation) or the fair market value at the time placed in service.  Not sure about the depreciable life.  My guess would be that would also start over if FMV is less than adjusted basis. 

[DANRVAN]

21 hours ago, Gail in Virginia said:

From what I recall, I would think the depreciable basis would be the lesser of the adjusted basis in the house (cost + improvements - previous depreciation) or the fair market value

 

 

From what I understand, that rule applies if the property was not previously used in a trade or business.

 

Per reg 1.167(g)-1 

In the case of property which has not been used in the trade or business or held for the production of income and which is thereafter converted to such use, the fair market value on the date of such conversion, if less than the adjusted basis of the property at that time, is the basis for computing depreciation.

[Gail in Virginia]

In that case, the improvements were not previously used in trade or business, and would have to be depreciated based on the FMV, would they not?  And would that FMV be determined by how much they increased or decreased the value of the house since, I assume, they are an integral part of the house and not stand alone improvements? 

[Lee B]

Given inflation what is the likelyhood that FMV is less than adjusted basis.