Depreciation Percentage
Hi, I was wondering what percentage I would use for figuring out house depreciation rate and fitting depreciation rate? I live in wisconsin and just wondering what percentage is usually used for these. Thanks.
My accountant depreciates my investment properties over 27.5 years. I'm not sure if that is a nationwide thing, but I'm pretty sure it is.
He takes the purchase price of the property and divides that by 27.5 and that's the amount that is tax deductible.
I'm sure DaveT can give you a much better explanation...
Good Luck!
[addsig]
Well on this rental program I have it asks for percentage. The program is from New Zealand so they have it in there as 6% for home depreciation and 15% for fitting depreciation, so I am actually looking for that kind of percentage. Any idea on what that would be? Thanks.
For federal tax depreciation residential real property is depreciated over 27.5 years, and uses mid-month straight-line convention. Mid-month convention means the property is assumed to be put into use on the 15th of the month.
So, for instance, if you buy a property on 2/4, your depreciation starts on 2/15. You would be allowed 10.5 months of depreciation in the first year.
1/27.5 = 3.636%, so I believe this is the percentage you were asking for.
However, in my example above, in the first year you would only be allowed 10.5/12 of that, or 3.182%.
The mid-month computation also applies in the year you sell the property.[ Edited by rentalman on Date 05/23/2004 ]
Quote:...Well on this rental program I have it asks for percentage. The program is from New Zealand ...US Tax Code is completely different from the New Zealand tax code. See rentalman's response above.
[ Edited by DaveT on Date 05/24/2004 ]
Quote:
On 2004-05-21 09:41, rentalman wrote:
For federal tax depreciation residential real property is depreciated over 27.5 years, and uses mid-month straight-line convention. Mid-month convention means the property is assumed to be put into use on the 15th of the month.
So, for instance, if you buy a property on 2/4, your depreciation starts on 2/15. You would be allowed 10.5 months of depreciation in the first year.
1/27.5 = 3.636%, so I believe this is the percentage you were asking for.
However, in my example above, in the first year you would only be allowed 10.5/12 of that, or 3.182%.
The mid-month computation also applies in the year you sell the property.
<font size=-1>[ Edited by rentalman on Date 05/23/2004 ]</font>
Does this apply to a Mulit-family if it is your primary residence? If not do you know how much you can depreciate?
A primary residence can be 1-4 units. 5 and above can not be a primary residence. If it's a primary residence you treat it as such and not an investment property. Talk to your accountant about tax stratagies if it's a 1-4 unit primary.
If it's a multi OR an investment property you can depreciate the IMPROVEMENTS but not the land. Land is generally about 20% of the value in my neck of the woods. The County Assessors office can tell you what it is exactly. Here's an example
You can depreciate the improvements over 27.5 years
Property Value: $1,000,000
Land Value: 200,000
Building Value: 800,000
Yearly Depreciation: $29,090
(ie, 800,000/27.5 = $29,090)
If you're hurting for a tax break you can break the property down even further and depreciate specific assets and capital improvements at accelerated rates (appliances, roofs, fences, driveways, etc). It gets a bit hairy, so you'd want to talk to your accountant if you wanted to do that. It does give you added tax shelter over the life of the property.
hibby76,
I believe a mult-unit property where one unit is the owner's primary residence is considered a hybrid use property.
For tax purposes, the property is divided into two separate properties -- a primary residence and an investment property. The cost basis is allocated between the residence unit and the investment property portion. Only the investment property portion is depreciable, and only for the depreciation basis attributed to the investment use property.
The portion of the property taxes and mortgage interest attributed to the residence unit is an itemized deduction on Schedule A. The rest of the mortgage interest and property taxes are business or rental expense deductions. Repairs to the residence unit are personal expenses and not deductable. Repairs to the investment property portion are expensed against rental income.
In the same way, when the property is sold, the portion of the profit allocated to the residence unit can qualify for the capital gain exclusion while the rest of the taxpayer's profit qualifies for capital gains tax treatment on the sale of investment property.
This tax treatment is a direct parallel to the home office. Capital gains exclusion does not apply to the portion of the profit attributed to the home office -- though I have heard that proposed changes to the tax code will eliminate this distinction for the home office.[ Edited by NewKidinTown on Date 06/11/2004 ]
hibby mentioned a new matter in real estate depreciation that is very HOT, especially on the larger developments.
This is where the investment is broken down between 5-yr, 10-yr, 15-yr, 27.5-yr & land.
It requires a segeregated cost report issued by a specialized firm, but tax savings can be HUGE!