Your 2015 depreciation deduction for your condo is $0

Greetings all,

I know it is the day before taxes are due, but I have been reading and searching for an answer to my problem for about a week. I just cannot find one.

Our problem focuses on Depreciation of a Rental Property. I am using "FreeTaxUSA" to do our taxes this year (first time using it) and when I get to the depreciation section, the result is "Your 2015 depreciation deduction for your condo is $0." It does not indicate that we can claim any depreciation on our rental condo.

Are there any circumstances where depreciation on a rental property cannot be taken?

Here are our stats:

Rental condo in service: 01/01/2010 FMV at time of service: $369,000 Land: $238,000 (I used the 2015 tax assessors to get the current land percent and applied that to the $369,000 value above) Calculated improvements: $131,000 (simply $369K - $238K)

0% used for business, but I consider myself an "Active" participant (I make the decisions, get the rent, approve repairs, etc) Based on S-L, mid-month. At 27.5 Years, I calculate that I should be depreciating $4,764. However, the tax software tells me I depreciate $0.

Married, filed jointly with 1 dependent.

MAGI of $131,692. I know there is a sliding scale between $100K and $150K. With the 50% calculation, we still have $9,154 available for deductions ($150K - $131,692 = $18,308. $18,308/2 = $9,154).

Total Rental income for 2015 is: $21,900 Total Rental Expenses for 2015 (depreciation not included) is: $25,921 Total Rental Income for 2015 (without calculating depreciation) : -$4,021

We are itemizing deductions right now at $18,725.

Other than the rental, our taxes are fairly basic and straight forward. I just do not know why FreeTaxUSA says that my 2015 depreciation deduction is $0 (zero.)

Any help or advice is great appreciated.

Thanks!

Reply to
jackattack316
Loading thread data ...

I cannot imagine why you are not supposed to take depreciation. If there is a Passive Activity Loss limitation, that is a different matter, and the loss (which may be limited) should include the depreciation.

What happened last year, and what did you use to prepare your taxes?

Reply to
taxed and spent

Hmmm... I suspect that "business" use in this case actually means "business or rental" use. Set that indicator based on your percentage of rental use and see what happens.

MTW

Reply to
MTW

@ MTW: Wow, MTW, you rock. That seems to be it! I have spent HOURS reading, searching, and changing my AGIs, deductions, basis, land, just about everything just to see if I could make depreciation change. But, for some reason, I never even thought about changing that one little business field from 0 to 100%. That worked!! I can now depreciate my rental property. Thank you so much!

@ Taxed and Spent: Unfortunately, this is the first year I am depreciating the rental property. I just did not know enough about it. We never intended to have a rental property. We bought the condo during the bubble and had to move for a job. Since the FMV is still way below our purchase, we are trying to wait it out via renters.

I was one of those people who thought that if I never claimed depreciation, I would never have to recoup it when we sell the property :-(. It was only this week during my research that I realized my error.

So, a follow-up question. Now that I can depreciate, the software is asking me to enter "Prior Year Depreciation" and "Prior Year AMT Depreciation." It calculates the value to be $23,620. However, because of my lack of knowledge and mistake, I actually depreciated $0. If I enter "0" in the boxes, my depreciation is $5811. If I enter the software's recommendation of $23,620, then my depreciation is $4764.

I have every intention of amending the last 3-years of tax returns to "fix" the depreciation. I know that I will miss out on 2010-2011. But, should I just enter the software's recommendation of $23,620, $0 because I never depreciated, or the last 3 years of depreciation because I plan on amending those returns?

Thank you guys so much for all of the help.

Reply to
jackattack316

As far as I am aware, the value at the time the condo was placed in service is irrelevant. What matters is your basis in the condo, which starts with the price you paid to buy it.

As far as using the tax assessor's records to determine value of land versus value of improvements, depending on the state you are in, those numbers can be very out of whack. For most properties the rule of thumb (meaning not necessarily the case) is that the land is about one-third and the improvements are two-thirds of the purchase price.

For condos that rule of thumb is usually different, because condos are often multi-story and the amount of land associated with any individual condo is small. So the amount of the purchase price associated with improvements would be a higher percentage and the amount associated with the land would be a lower percentage - perhaps a very low percentage.

A professional assessment (or at least an opinion from a real estate agent familiar with the value of unimproved property in the area) would be much better than what you are doing.

Reply to
Stuart Bronstein

Not entirely correct. The basis for depreciation is the lesser of the basis and the FMV at the time the property was put in service.

-- Arthur L. Rubin CRTP, AFSP in Brea, CA

Reply to
Arthur Rubin

Right. Thanks for the clarification/correction.

Reply to
Stuart Bronstein

Could you explain the term: "property was put in service." ? For example, if I inherited a condo in 2002 but waited until 2006 before renting it, what year would my property have been "put in service": 2002 or 2006? Or the year it was actually built: 1998?

>
Reply to
Arnie Goetchius

What does "waited until 2006" mean? Did it take you that long to find a tenant? Or were you trying to sell it in the mean time? Or were you using it in the mean time?

Normally "put into service" means when you start to use it for commercial purposes. However your intent is important. So when you intended to rent it, and took steps to do that, it may well have been placed into service at that time, even though it took you longer than that to get a tenant.

Reply to
Stuart Bronstein

I want to first express that I am just learning about Rental Depreciation and the rules associated. So, I have about a week of experience. But, from what I have read and understand (as Stu has already mentioned), "put in service" is the month/year in which you decided to put your condo up for rent. It really is a gray area in that it is your decision when that time is, not the government's. But, it definitely is NOT 1998, since you did not even get it until 2002.

As far as 2002 or 2006, that is up to you. When you received the property in 2002, did you start getting it ready with the intent of renting it and it simply took you 4 years to finish everything and find renters? Then, the "put in service" date is 2002. If you lived in it for a bit in 2002, or just sat on it idle for 4 years, and THEN decided to rent in 2006, then your "put in service" date is 2006.

For me, we bought our condo (built 1978) in Nov 2007 as our primary residence. We had to leave ~ Aug 2009 (ugh, less than 2 years) for work, but I stuck around for a few months wrapping this up until Dec 2009. Throughout January 2010, I cleaned, did a bit of remodeling, and started looking for renters. So, for me, my "put in service" date was 01/01/2010. I was not able to find renters until ~ April 2010, but my service date stayed the same.

Reply to
jackattack316

Thanks for the response. We used it for a couple of years and then decided to rent about 2004-2005 so I guess mid 2004 was when it was "put in service"

Reply to
Arnie Goetchius

jackat, you seem like a bright and motivated kid, and if you don't explore IRS's Form 3115 and find out how to get back the depreciation that you "missed" in the early years of this condo rental, you'll not be living up to our expectations of what you can do.

Look up "Change of Accounting Method" and the aforementioned Form 3115 and do some tough reading and the payoff will be the $$ of depreciation that you *thought* you missed!

Reply to
lotax

Form 3115 is *not* as overwhelming as it looks. Trust us. See DCN 107 in the instructions that accompany the Form 3115.

Reply to
lotax

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.