Can I go back and take rental house depreciation?

Question

Haven't taken depreciation on my house I began renting out 10 yrs ago. It was a new house in '81'..we lived there till '97' . (original loan for $45,000...Improved value of house by a third)
Can I go back and take depreciation? Should I?
What figure is the house depreciated at? Is it according to the increased value (appreciated) figure (value it is today) or the original purchase in 81 price it at minus finance charges?

Answer 1

"ninasgramma" is totally correct. I just wanted to add that you should go back and amend at least for 2003 and afterwards, whether you get a refund or not.

When and if you sell the rental property, you will need to "recapture" the depreciation allowed or allowable and report it as income. In other words, whether you took depreciation or not, you will still need to report the total accumulated depreciation that would have been allowed and pay tax on this ordinary income at your marginal tax rate.

You will need to figure out your basis to depreciate. Start with your adjusted cost (cost + improvements) up until the date of conversion. Do not include the cost of the land. This amount would have been depreciated over 27.5 yrs. Figure out the depreciation that you would have been allowed to take each year, and subtract this amount from the cost basis each year, until you will start to report depreciation (2003). Use this remaining net cost amount and divide by what's left of the 27.5 years, which would be around 22 years in 2003. This is the amount of depreciation that will be taken for 2003 and each year thereafter, until fully depreciated, or sold.

Answer 2

The house is depreciated at the lower of its fair market value on the date it was converted to a rental property, or your adjusted basis in the property on the same date.

The amount of the loan, or the finance charges, do not effect the basis of the house. You need to find out the purchase price of the house (including fees associated purchasing the house, but not fees associated with acquiring financing), and subtract the value of the land. To this amount, you add the cost of improvements, up to the date of conversion to a rental house. This is your basis on the date of conversion.

A rental house is depreciated over 27.5 years, so your depreciation would have been over $2,000 each year, if your basis was $60,000 for example.

There isn't any point in amending earlier returns, since you will not get any refund from those years. However, you do need to figure depreciation for all those years, so that you know the adjusted basis for 2003 and all years forward

You can go back to 2003 and amend your return to show depreciation for 2003. This has to be done by April 17, 2007 or you will lose any refund due you. You can amend 2004 and 2005 and get refunds as well.

Answer 3

Ninasgrandma,
Does that mean you add the original cost ($45,000. ) and fees + cost of improvements only?. For example if the improvements and property values doubled or tripled between '81' and '98'..would the NEW value be depreciated? Like if it became worth $90,000. in 1998 would that be the basis? Or would you always use the $45,000 + improvements figure?
Thank you

Answer 4

Please forgive. Example equation for his question?
House $45,000 when new in 81.
Started renting house in 97 and by then had put in improvements to increase value. Say actual cost to improve=10,000. (but didn't that increase the FMV more than 10,000? say exmpl...added 1/2 bath,+ 2 bedrooms)
How can you find the FMV in 97 if its ten years later? Could you show the math?
Please be patient. Pretend I am 15 years old.

Answer 5

Check with a Tax Professional or CPA regarding filing of Form 3115 Change in Accounting Method.

This may allow you to claim the depreciation for the closed years (prior to 2003)

Answer 6

There in all probability isn't any sturdy cost located on the land. in lots of cases the assessment you get from the county is for the whole sources, no longer purely the land. seem at comparable vacant land on your section. We use a usually occurring of 12% for the land for mid-Michigan. that would, or won't artwork to your section. you are able to in all probability basically use the unique fee as a results of fact it replace into purely six months later - or you need to use despite approach seems clever to you to very well worth the present industry cost of the development. What ever you do, save your documentation and the reasoning at the back of why you chosen to apply the cost you chosen to apply...

Answer 7

To the above poster, you use the LOWER of the actual cost basis or the FMV when it's placed in service as a rental. If the cost was $50k and the FMV was $90k, you'd use $50k. If the cost was $50k and the FMV was $40k, you'd use $40k.

Answer 8

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