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Discussion:Residential Rental & Remodeling
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Discussion Forum Index --> Tax Questions --> Residential Rental & Remodeling
MarieR (talk|edits) said:
| 10 January 2007
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| Does anyone know how to treat depreciation on a residential rental property during remodeling? Building was placed in service as a rental in January of 2006 and was rented from January through August of 2006. Since the last tenant moved out in August the building has been and is still being remodeled. What happens to the depreciation from Sept to Dec?
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Will (talk|edits) said:
| 10 January 2007
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| It can only be depreciated while it is in service, meaning available for rent. You are going to have to stop depreciation for those four months. Im not sure how to do it in the software yet...
Will
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Deback (talk|edits) said:
| January 10, 2007
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| You should be able to override the depreciation amount for the current year in the software.
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Taxstudent (talk|edits) said:
| 11 January 2007
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| You won't need to override the software. Once an asset has been placed in service, (i.e. devoted to use in a trade or business), you continue to depreciate it until it has been switched to some other purpose or disposed of. See, e.g. Lorraine Corp. v. Comm'r, T.C. Memo 1958-141.
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Deback (talk|edits) said:
| January 11, 2007
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| TS - The question was not about disposition of the rental property but about what happens to the depreciation during the period the property is being remodeled. Assuming the property will be available for rent again in the near future, the depreciation will begin again on that date. I was telling Will that the depreciation for the current year can be overridden to enter the prorated depreciation for the time of year the property was available for rent. 8/12 (Jan through August) of the regular depreciation would be the amount to enter on the depreciation deduction line.
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Taxstudent (talk|edits) said:
| 11 January 2007
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| It's the same principle. Look it up in CCH, Merten's, or any of the standard references. Temporarily idle assets are depreciated. You don't stop depreciating it until its disposed of or converted to a non-qualifying use.
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Dennis (talk|edits) said:
| 11 January 2007
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| Real property is not machinery and temporary is rather subjective. The regs are clear on the treatment of property under construction.
Intent and extent are probably the guidlines.
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Death&Taxes (talk|edits) said:
| 11 January 2007
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| In the discussion cited above in my comment, the 'break in service' was lengthy, two years as of the date of question and still not finished. Here the questioner does not say when the property will be put back in service. She says it is still being remodeled four months later, but we have no idea when it will be ready for tenants or whether it is being shown now.
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MarieR (talk|edits) said:
| 11 January 2007
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| Thank you for the comments. The property should be placed back in service and available for tenants by March 2007. Is the length of time in this break in service a factor to determine whether or not depreciation can be taken or is it simply just not depreciated when not in service (temporary or not)?
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Deback (talk|edits) said:
| January 11, 2007
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| Marie - I've searched at Google and at the IRS and can't find anything specific about rental properties. All I've found is that you continue to depreciate "temporary idle assets," but none of the articles I've found mentions if this applies to both equipment and rental property. So, it appears that Taxstudent is correct. I still would like to find something in print, so try searching Google for the following: Lorraine Corp. v. Comm'r, T.C. Memo 1958-141
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