Can I stop depreciating a rental property?
Depreciation is a key tax benefit for rental property owners, allowing them to deduct a portion of the property’s value each year to account for its wear and tear. But what if you no longer want to depreciate your rental property? Can you stop? The short answer is yes, but there are important considerations to keep in mind.
If you choose to stop depreciating your rental property, you must file Form 3115 with the IRS to request a change in accounting method. This form notifies the IRS that you will no longer be taking depreciation deductions on your property. However, once you stop depreciating, you cannot resume taking depreciation deductions in the future unless you sell or dispose of the property.
There are several reasons why you might want to stop depreciating a rental property. Perhaps you have already fully depreciated the property and no longer wish to take deductions. Or maybe you plan to convert the property to personal use, in which case you would no longer be eligible for depreciation deductions.
Before making the decision to stop depreciating your rental property, it is important to consult with a tax professional to understand the potential consequences and implications for your tax situation.
FAQs about Depreciating a Rental Property:
1. Can I skip depreciation on my rental property?
Yes, you can choose not to take depreciation deductions on your rental property if you wish. However, once you stop depreciating, you cannot resume taking depreciation deductions unless you sell or dispose of the property.
2. Does stopping depreciation mean I can avoid paying taxes on rental income?
No, stopping depreciation does not mean you can avoid paying taxes on rental income. You are still required to report rental income on your tax return, but you will just not be able to deduct depreciation expenses.
3. Can I restart depreciation on my rental property if I stopped in the past?
If you have previously stopped depreciating your rental property, you can only restart taking depreciation deductions if you sell or dispose of the property.
4. Will stopping depreciation affect the value of my rental property?
Stopping depreciation does not directly affect the value of your rental property. The value of the property is based on market conditions and other factors, not on whether or not you are taking depreciation deductions.
5. Are there any penalties for stopping depreciation on a rental property?
There are no specific penalties for stopping depreciation on a rental property, but you may be missing out on potential tax savings by not taking depreciation deductions.
6. Can I claim depreciation on a rental property I own but do not rent out?
If you own a rental property but do not rent it out, you can still claim depreciation as long as the property is available for rent and you actively try to rent it out.
7. What happens to accumulated depreciation if I stop depreciating my rental property?
If you stop depreciating your rental property, any accumulated depreciation will remain on your tax records. You just won’t be able to take any additional depreciation deductions in the future.
8. Can I deduct depreciation on a rental property that is used for personal vacations?
If you use a rental property for personal vacations, you may still be able to deduct depreciation on the portion of the property that is exclusively used for rental purposes.
9. How does stopping depreciation affect the cost basis of a rental property?
Stopping depreciation does not affect the cost basis of a rental property. The cost basis is the original purchase price of the property plus any improvements, and it remains the same regardless of whether or not you take depreciation deductions.
10. Can I deduct depreciation on a rental property that is in need of repairs?
You can only deduct depreciation on a rental property that is used for the production of income. If the property is in need of repairs and is not currently being rented out, you may not be able to take depreciation deductions.
11. Will stopping depreciation affect my ability to claim other rental property expenses?
Stopping depreciation will not directly affect your ability to claim other rental property expenses such as mortgage interest, property taxes, and maintenance costs. These expenses are separate from depreciation deductions.
12. Can I deduct depreciation on a rental property that is rented out to family members?
You can still deduct depreciation on a rental property that is rented out to family members, as long as the property is used for the production of income and you follow all tax laws and regulations related to rental properties.