Depreciation On Property I Lived In
I have lived in a 2 family property for the last 8 years. I have done my taxes correctly the last 8 years, seperating the units as if they were 2 buildings, depreciating the rental portion etc... but now I am moving and am putting renters into my side of the duplex. How will I handle taxes next year with me living in it part of the year and renters the other part? Also how do I handle depreciation on my side? What amount of the property do I start with?
Since you have already been depreciating one side of your duplex, you already know the value of the land and the value of the dwelling structure that you are living in.
When you convert your residence unit to rental use, you may start depreciating your rental starting from the month you place it in service. The depreciation basis for the dwelling unit is computed the same way as your rental unit -- price you paid for the unit minus the value of the land, plus the cost of any capital improvement you have made, or, fair market value whichever is less.
You would continue to treat your duplex as two separate properties, each with its own depreciation schedule.
THanks NewKid
So If I paid $115,000 for the property 9 years ago, and the building is worth $90,000 I would start depreciating the half I lived in at $45,000? Even though I bought it that long ago?
Bill - assuming you made no other capital improvements that is correct. You depreciate your basis in the property (which may or may not bear acurrent relationship on the current value of the property).
Bill,
Just to clarify, you depreciate your cost basis in the dwelling structure, OR, the fair market value whichever is less.
How much was the initial depreciation basis for the rental half of the duplex? If you made no improvements to the residence half of the property, then the initial depreciation basis for your residence unit should be the same as it was for the rental unit -- provided the fair market value is not less.
Bill,
I would agree that your basis for depreciation on the residence side is either $49,350 plus $2394 for the windows, or, the FMV of the residence side on the date it is placed in service as a rental, whichever is less. You start a new 27.5 year depreciation schedule for the residence unit while continuing the current depreciation schedule for the rental unit.
Refinance fees that are not deductible as interest are generally not an adjustment to basis recovered through depreciation, but rather, a capital expense that is amortized over the life of the loan.
Consult IRS Pub 527 and your CPA for specific details.
That makes sense newkid thanks!! You have been a major help. I appreciate it!
Your business is an active income trade or business -- you said that yourself.
The most important piece of information we need to know is how your business is structured. Is the business a corporation (C or S), a partnership, or a sole proprietorship? If your business is an LLC, how is the LLC treated for income tax purposes?
How your personal income derived from the business is taxed, largely depends upon how your business is structured for tax purposes and whether or not the business pays you a salary..
[ Edited by NewKidInTown3 on Date 08/11/2010 ]