Keyword: Apartment Building
This is archived information that pertains only to the 2003 Tax Year. If you
are looking for information for the current tax year, go to the Tax Prep Help Area.
11.1 Sale or Trade of Business, Depreciation, Rentals: Depreciation & Recapture
In calculating depreciation on both my rental apartment building
and its furniture, what depreciation type, asset class, depreciation method,
and recovery period should be used?
You can claim a special depreciation allowance for qualified property you
acquired after September 10, 2001 and before January 1, 2005. The allowance
is a depreciation deduction equal to 30% of the property's depreciable basis.
The special depreciation is figured before you calculate your regular depreciation.
To qualify for the special deduction the property must:
Be new property that is depreciated under MACRS with recovery period of
20 years or less.
Be property that was acquired after September 10, 2001 and before January
1, 2005.
Be property that was placed in service Before January 1, 2005.
Be property that the original use began after September 10, 2001.
See Publication 946, How to Depreciate Property for
additional information on the special deduction.
The Jobs and Growth Tax Relief Reconciliation Act of 2003 modified the
bonus depreciation rule by substituting a 50% special depreciation allowance
for the 30%, for property acquired after May 5, 2003 and before January 1,
2005. No binding contract for acquisition can be in effect before May 6, 2003.
Property eligible for the 50% additional first-year depreciation is not eligible
for the 30% additional first-year depreciation. However, an election can be
made to have the 30% additional first-year depreciation deduction apply to
50% depreciation property instead of the 50% additional first year depreciation
deduction. It is also possible to elect not to claim the additional first-year
depreciation deduction.
References:
We replaced the roof on a residential rental property and need to
know what to use for the classification and recovery period to calculate depreciation?
Replacement of a roof on a residential rental property is a capital improvement
to the structure. The roof is in the same class of property as the property
to which it is attached. Since the property is residential rental property,
the roof is generally depreciated over a residential rental property recovery
period of 27.5 years using the straight line method of depreciation and a
mid-month convention. You cannot write off (or take a loss on) any remaining
basis in the replaced roof. For more information, refer to Publication 527, Residential
Rental Property, and Publication 946, How to Depreciate Property.
References:
On residential rental property, would new windows and siding be
considered a repair that could be deducted against income, or would they be
capitalized as an improvement?
Replacement of windows and siding on a residential rental property is a
capital improvement to the structure, provided the replacement improves the
value of this property or substantiality prolongs its life. The windows and
siding, in that event, are in the same class of property as the property to
which they are affixed. In this case, the windows and siding are generally
depreciated over a recovery period of 27.5 years using the straight line method
of depreciation and a mid-month convention. For more information, refer to Publication 527, Residential Rental Property, and Publication 946, How
to Depreciate Property.
References:
We have incurred substantial repairs to our rental property: new
roof, gutters, windows, furnace, and outside paint. What are the IRS rules
concerning depreciation?
Replacements of roof, rain gutters, windows, and furnace on a residential
rental property are capital improvements to the structure because they materially
add to the value of your property or substantially prolong its life. The items
would be in the same class of property as the rental property to which to
which they are attached. Since the property is residential rental property,
the items are generally depreciated over 27.5 years using the straight line
method of depreciation and a mid-month convention.
Repairs, such as repainting the house, are currently deductible expenses.
A repair keeps your property in good operating condition. It does not materially
add to the value of your property or substantially prolong its life. Repainting
your property inside or out, fixing gutters or floors, fixing leaks, plastering,
and replacing broken windows are examples of repairs. If you make repairs
as part of an extensive remodeling or restoration of your property, the whole
job is an improvement. In that case, you should capitalize and depreciate
the repair costs as the same class of property that you have restored or remodeled
as discussed above. For more information, refer to Publication 527, Residential
Rental Property, and Publication 946, How to Depreciate Property.
References:
How many years do I depreciate a new furnace installed as an improvement
on residential rental property and what method do I use to compute the depreciation?
Replacement of a furnace in a residential rental property is a capital
improvement to the structure. The furnace is in the same class of property
as the property in which it is installed. Since the property is residential
rental property, the furnace is, generally, depreciated over a recovery period
of 27.5 years using the straight line method of depreciation and a mid-month
convention. For more information, refer to Publication 527, Residential
Rental Property, and Publication 946, How to Depreciate Property.
References:
I purchased a snowblower and a lawn mower strictly for use at a
residential apartment building I own. Can I elect the section 179 deduction
to fully deduct the costs of the snowblower and lawn mower?
You cannot claim section 179 expense for property held to produce rental
income (since it is use in connection with the furnishing of lodging). These
assets are classified as 5-year property and must be depreciated under MACRS
(Modified Accelerated Cost Recovery System).
You can claim a special depreciation allowance for qualified property you
acquired service after September 10, 2001 and before January 1, 2005. The
allowance is a depreciation deduction equal to 30% of the property's depreciable
basis. The special depreciation is figured before you calculate your regular
depreciation. To qualify for the special deduction the property must:
Be new property that is depreciated under MACRS with a recovery period
of 20 years or less.
Be property that was acquired after September 10, 2001 and before January
1, 2005.
Be property that was placed in service Before January 1, 2005.
Be property that the original use began after September 10, 2001.
See Publication 946 , How to Depreciate Property for
additional information on the special deduction.
The Jobs and Growth Tax Relief Reconciliation Act of 2003 modified the
bonus depreciation rule by substituting a 50% special depreciation allowance
for the 30%, for property acquired after May 5, 2003 and before January 1,
2005. No binding contract for acquisition can be in effect before May 6, 2003.
Property eligible for the 50% additional first-year depreciation deduction
is not eligible for the 30% additional first-year depreciation deduction apply
to 50% depreciation property instead of the 50% additional first-year depreciation
deduction. It is also possible to elect not to claim the additional first-year
depreciation.
References:
When an individual sells a building, what depreciation is being
recaptured? Is it the amount of depreciation taken in the prior years or the
depreciation left?
Generally, the amount of depreciation you must recapture for residential
rental or nonresidential real property is the excess of the depreciation allowed
or allowable over straight line depreciation for the property. Thus, if you
sell a building placed in service after 1986 which required the use of the
straight-line method, you would not have any depreciation to recapture. However,
if you took the 30% special depreciation allowance for your building, this
allowance may be subject to recapture. For property placed in service in 1986
and earlier, see Publication 946, How to Depreciate Property.
For further information, refer to Publication 544, Sales or Other
Disposition of Assets, and Supplement to Publication 946, How
to Depreciate Property.
References:
How do I recapture depreciation on rental property that has been
sold?
If you dispose of residential rental property placed in service after 1986
(or after July 31, 1986, if the election to use MACRS was made), you would
not have any depreciation to recapture because you used a straight-line method.
If you do have depreciation to recapture resulting from a gain on the sale,
or because you did not meet the condition above, use Form 4797 (PDF), Sale of Business Property, to compute the amount of
depreciation recapture.
References:
11.2 Sale or Trade of Business, Depreciation, Rentals: Rental Expenses v Passive Activity Losses (PALs)
I own a duplex. I live on one side and rent out the other. Are my
mortgage interest and property taxes fully deductible on Schedule E?
No. Assuming that the loan is secured by the duplex, only the mortgage
interest and property taxes for the portion you are renting are deductible
on Form 1040, Schedule E (PDF), Supplemental
Income and Loss. If you receive one bill, you should prorate the rental
portion based on square footage. Your portion can be deducted on Form 1040, Schedule A (PDF), Itemized Deductions,
if you itemize and meet the requirements for Deductible Home Mortgage Interest.
For more information, refer to Publication 527, Residential Rental
Property (including Vacation Homes), Instructions for Form 1040, Schedule
E, Supplemental Income and Loss, and Publication 936, Home Mortgage
Interest.
References:
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