Investing in rental property can be a smart financial move, allowing you to earn passive income and build wealth over time. One key aspect of rental property ownership is depreciation, which can help you save on taxes. But when exactly can you start depreciating rental property? Let’s dive into the specifics.
When can you start depreciating rental property?
**You can start depreciating rental property as soon as it is placed in service for the production of income. This means once the property is available for rent, even if it is not currently rented out, you can begin depreciating its value.**
Now that we’ve answered the main question, let’s address some related FAQs:
1. Can I depreciate the purchase price of rental property?
No, you cannot depreciate the purchase price of rental property. Instead, you can only depreciate the cost of the building and any improvements made to it.
2. How long does depreciation of rental property last?
Depreciation of rental property typically lasts for 27.5 years for residential real estate and 39 years for commercial real estate.
3. Can you depreciate land for rental property?
No, you cannot depreciate land. Land is considered a non-depreciable asset because it does not wear out, deteriorate, or become obsolete.
4. What is the straight-line method of depreciation?
The straight-line method of depreciation evenly spreads out the depreciation expense over the useful life of the asset. This is the most common method used for depreciating rental property.
5. Can I claim depreciation on my rental property if it is not rented out?
Yes, you can still claim depreciation on your rental property even if it is not currently rented out, as long as it is available for rent.
6. Do I need to hire a professional to calculate depreciation on my rental property?
While it is not necessary to hire a professional to calculate depreciation, it is recommended to consult with a tax professional or accountant to ensure accurate depreciation calculations and compliance with tax laws.
7. Can I accelerate depreciation on my rental property?
Yes, you may be able to accelerate depreciation on your rental property through strategies like cost segregation or bonus depreciation. These methods allow you to front-load depreciation deductions and increase tax savings in the early years of ownership.
8. What happens if I sell my rental property before it is fully depreciated?
If you sell your rental property before it is fully depreciated, you may have to recapture depreciation as ordinary income. This means you will have to pay tax on the depreciation deductions you previously claimed.
9. Can I deduct repair and maintenance costs in addition to depreciation?
Yes, you can deduct repair and maintenance costs as expenses in addition to claiming depreciation on your rental property. However, it is important to distinguish between repairs and improvements for tax purposes.
10. What if I use my rental property for personal use part of the time?
If you use your rental property for personal use part of the time, you will need to allocate depreciation between the rental and personal use portions. Only the portion used for rental purposes is eligible for depreciation.
11. Can I claim depreciation on a rental property I inherited?
Yes, you can claim depreciation on a rental property you inherited, based on its fair market value at the time of inheritance. The depreciation schedule will continue from that point forward.
12. What happens if I stop renting out my property?
If you stop renting out your property but still own it, you must continue to depreciate it until the end of its useful life or until you dispose of the property. If you sell the property, you may have to recapture depreciation as mentioned earlier.