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#1 (permalink)
04-21-2016, 05:33 PM
 Junior Member Join Date: Apr 2016 Posts: 4
Depreciation on rental converted to primary home and then converted back to rental

Hello,

I need help calculating the depreciation basis for a home we purchased in 2000 and rented out immediately. The purchase price was 179K, I can't remember what the land was but the accountant at that time calculated a depreciable amount of 174,157. We deducted depreciation in the total amount of about 25,000 in the 4 years it was rented before we moved in.

We moved into the house in 2004 and improved the home by about 23,000 in the 12 years we lived there. We do not have all of the receipts for the improvements so i dont know if they count. We added a screened porch and remodeled the kitchen and upgraded all floors. etc.

In 2015 we moved out and converted it back to a rental. I don't know how to calculate the basis, do I just continue with the 174157 we had and depreciate only for 23.5 years remaining until we use it all up, and depreciate the improvements separately? or, do i have to reduce the basis by the 25K depreciation already taken up until 2004?

This is so confusing, thank you for any help you can provide. Thank you !

Black

#2 (permalink)
04-22-2016, 02:55 AM
 Moderator Join Date: Oct 2010 Posts: 5,258
I need help calculating the depreciation basis for a home we purchased in 2000 and rented out immediately. The purchase price was 179K, I can't remember what the land was but the accountant at that time calculated a depreciable amount of 174,157. We deducted depreciation in the total amount of about 25,000 in the 4 years it was rented before we moved in. =>>The depreciable basis of the home converted into a rental home is the lower of your adjusted basis in the residence at the date of conversion (purchase price plus qualified capital improvements), or the fair market value of the property at the time of conversion. For example, say, you purchased a home in LA in 2000 for \$250k, of which \$50k represented the cost of the land. you converted it to a rental property. The property?s FMV, excluding the land, on its conversion to rental property was \$165k the basis for depreciation is \$165k, the FMV at the time of conversion, since it was less than the adjusted basis of \$200K. (Adjusted basis is generally the cost of the property plus amounts paid for capital improvements, less any depreciation and casualty losses claimed for tax purposes.)

We moved into the house in 2004 and improved the home by about 23,000 in the 12 years we lived there. We do not have all of the receipts for the improvements so i dont know if they count. We added a screened porch and remodeled the kitchen and upgraded all floors. etc.
====>>the receipts are your best evidence of your renovation expenses.as you don't have them, do your best to estimate the cost. Your tax adviser can assist you.
In 2015 we moved out and converted it back to a rental. I don't know how to calculate the basis, do I just continue with the 174157 we had and depreciate only for 23.5 years remaining until we use it all up, and depreciate the improvements separately? or, do i have to reduce the basis by the 25K depreciation already taken up until 2004? ========>>you need to reduce the \$25K depreciation expenses taken previously; as s aid previously, your basis for the rental home converted into a rental again is the lower of the FMV and the adjusted basis of the home converted into a rental home. Depreciation, however, only applies to the portion of the house used solely for generating income and does not apply to land.

#3 (permalink)
04-25-2016, 03:59 PM
 Junior Member Join Date: Apr 2016 Posts: 4
Thank you so much.

So can you confirm I am understanding this right.

So if the basis in 2000 was 174,157 ( the lesser of FMV and purchase price, less land)

Depreciation deductions of 25,102 between 2000-2004 while it was rented

We improved the property by 23,000 between 2004-2015

Current FMV is 350K

So in that case the current depreciation basis for that property would be 174,157 (purchase price less land, at the time of the purchase the land was valued at 5K)-25102 (depreciation taken already)=149,055. To that add+23,000 in improvements =172,055. And the 27.5 yrs. would start again for depreciation, regardless of the fact that 4 years of depreciation was used already, this is like a new start in depreciation. Is this correct? Thank you!

BL

#4 (permalink)
04-25-2016, 04:36 PM
 Moderator Join Date: Oct 2010 Posts: 5,258
Quote:
 Originally Posted by blacklab2005 Thank you so much. So can you confirm I am understanding this right. So if the basis in 2000 was 174,157 ( the lesser of FMV and purchase price, less land) Depreciation deductions of 25,102 between 2000-2004 while it was rented We improved the property by 23,000 between 2004-2015 Current FMV is 350K So in that case the current depreciation basis for that property would be 174,157 (purchase price less land, at the time of the purchase the land was valued at 5K)-25102 (depreciation taken already)=149,055. To that add+23,000 in improvements =172,055. And the 27.5 yrs. would start again for depreciation, regardless of the fact that 4 years of depreciation was used already, this is like a new start in depreciation. Is this correct? Thank you! BL

So if the basis in 2000 was 174,157 ( the lesser of FMV and purchase price, less land)=> aslongas you purchased it then yes.the lesser of FMV minus fmv of the land ( I mean fmv when it was converted to a rental home) or the adjusted basis( adj basis is basis plus costs for improvement minus land value

Depreciation deductions of 25,102 between 2000-2004 while it was rented=======>>then you must subtract the accumulated depre of 25102 from its adjusted basis as you already placed it for rental use.

We improved the property by 23,000 between 2004-2015=> as mentioned above; Add everything that you spent on home improvements to the basis to find your adjusted basis. you need to add back of 23K to your basis to calculate the adjusted basis of the pty when it was converted to a rental home. The date purchased/acquired is not the date it was converted to a rental property... but the date it was placed in service.

Current FMV is 350K==>as mentioned above;

So in that case the current depreciation basis for that property would be 174,157 (purchase price less land, at the time of the purchase the land was valued at 5K)-25102 (depreciation taken already)=149,055. To that add+23,000 in improvements =172,055. ====>correct.

And the 27.5 yrs. would start again for depreciation, regardless of the fact that 4 years of depreciation was used already, this is like a new start in depreciation. Is this correct?===>> The 27.5 years begins on the "placed in service date. Anyway when you dispose of it you must recapture all of the accumulated depreciation including the derpe of 25102 previously taken aslongas you sell it at a long term capital gain more than the combined accumulated sec 1250 depre.

#5 (permalink)
04-25-2016, 05:28 PM
 Junior Member Join Date: Apr 2016 Posts: 4
Thank you so much!

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