I have a new real estate investment which was completed from outside in 2006 and the inside is not done yet till a tenant moves in. I understand that I can take a depreciation allownace of $108,000 for the first year. Will the first year be when the building is completed from inside or rented etc. or should I take it in 2006? Thanks.
If you have invested so much money in this investment that you would be entitled to a depreciation deduction of $108,000, you certainly should be able to afford professional help with your taxes. In fact, I would think you really NEED professional help. To answer your question, though, you start taking depreciation when you place the asset in service. Since the building is not complete and you cannot have a tenant, you have not placed the building in service. So, you would not be entitled to depreciation in 2006. Lanny K. Williams, CPA Nawarat, Williams & Co., Ltd. Income Tax Services for Expatriate Americans
How did you come up with that $108,000? Seems awfully high for a single-unit property.
-- Rich Carreiro snipped-for-privacy@animato.arlington.ma.us
Depreciation begins when the property is placed in service. Rental real estate is placed in service when it is available to be rented. If the property was not yet ready to be rented on Decemer 31, 2006 then there is no depreciation deduction for 2006.
If it's commercial space, it might have been ready to be rented, with the tenant responsible for setting up the inside however he wants (or perhaps the landlord doing that after the lease is signed). Seth
Not if you use section 179 for the property. (big grin!)
ChEAr$, Harlan Lunsford, EA n LA
That is pretty much the situation.
Equipment such as AC etc.
I hope you didn't pay for that advice. The general rule is: Real estate expenses must be added back into the basis, (capitalized). Repairs are one of the exceptions and they are subject to a variety of rules.
Depreciaton can only be taken while the property is in service (producing income as in the tenant has moved in).
Dick
I believe the section 179 election is not allowed for residential real estate.
-- Rich Carreiro snipped-for-privacy@animato.arlington.ma.us
This is great. No, I did not pay since the "advisor" seemed hesitant when I asked for explanation. I only did so because it sounded too good. So, I know now that I have to have the tenant in-place. ... Thanks a lot!
AC is generally treated as a part of the building and depreciable over 27.5 years (residential) or 39 years (commercial). The exceptions are when special/additional cooling is required for a specific reason (e.g. in a grocery frozen food section). But since you didn't have a tenant in
2006 that shouldn't apply.-- Drew Edmundson, CPA Cary, NC
I should have been clearer. It is commercial property.
LOLROF!
Rich, you fell into my trap.
(bigger grin, now)
Of course I never commented on what one can or cannot do, but only IF he did it. ChEAr$, Harlan Lunsford, EA n LA
Doesn't matter. It's still not allowed.
ChEAr$, Harlan Lunsford, EA n LA
If you go take a look at section 179, and then 1245, it's actually pretty complicated. For the most part it's not allowed, but it looks like there may be some exceptions. Stu
BeanSmart website is not affiliated with any of the manufacturers or service providers discussed here. All logos and trade names are the property of their respective owners.