depreciation on new rental house

[oceanlovin'ea]

I had a client come in that bought a new house and converted their previous home to rental. I was setting up the depreciation and was looking in TTB to find how to handle the 3 windows he replaced in the house when they started to rent it.

But I found another interesting discovery. Depreciation is the LOWER of their basis or FMV at the time it is converted to rental. I guess I probably already knew that somewhere in the back of my mind. I just haven't set up a new rental in several years. I have clients with rental property but they have been rented it for as long as they have been my clients.

Just goes to show that we need to check out even the things we think we know if we haven't done that particular form or task for a long time. The value of his home has gone down since they bought it in 2006 about $80,000.

Thanks TTB for so clearly setting out rules for us.

Linda, EA

[taxea]

I had a client come in that bought a new house and converted their previous home to rental. I was setting up the depreciation and was looking in TTB to find how to handle the 3 windows he replaced in the house when they started to rent it.

But I found another interesting discovery. Depreciation is the LOWER of their basis or FMV at the time it is converted to rental. I guess I probably already knew that somewhere in the back of my mind. I just haven't set up a new rental in several years. I have clients with rental property but they have been rented it for as long as they have been my clients.

Just goes to show that we need to check out even the things we think we know if we haven't done that particular form or task for a long time. The value of his home has gone down since they bought it in 2006 about $80,000.

Thanks TTB for so clearly setting out rules for us.

Linda, EA

Don't forget to include any improvements and refi info to the basis.

[ddoshan]

It is important but the sticky part is what is the FMV. Coming up with a solid reliable number could be very important for future situations such as when and if they sell. I do believe you still need to keep track of the original basis in the property also.

[taxea]

It is important but the sticky part is what is the FMV. Coming up with a solid reliable number could be very important for future situations such as when and if they sell. I do believe you still need to keep track of the original basis in the property also.

FMV would be comp. sales of similar property.