How to Depreciate a Condominium
Deducting the cost of a condominium as depreciation expense over several years is permitted if the property generates rental income as an investment or is used for business. Whether the condominium is residential rental property or non-residential business property establishes the number of years for calculating depreciation. The percentage of cost to depreciate for a condominium is determined by which month of the initial year the property was first placed in service. A condominium is placed in service when first available for rent or ready to use in business. That is not necessarily the same date rent is initially collected or business operations begin.
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Things You'll Need
- Internal Revenue Service Publication 946
- Condominium purchase agreement
- Internal Revenue Service Form 4562
Instructions
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1
Open Publication 946 to Appendix A and locate Table A-6 if the condominium is used as residential rental property or Table A-7 if the condominium is used to conduct a business.
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2
Find the percentage to depreciate on the row for the year of condominium use as rental or business property. Use the column on the table corresponding to the month of the first year of rental or business use of the condominium. For example, the first year of depreciation is on Line 1 and a condominium first used in May has percentages in column 5. Therefore, the first year depreciation for a residential condominium placed in service during May is 2.273 percent according to Table A-6.
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3
Multiply the cost of the condominium by the percentage to depreciate from the table. The result is the annual depreciation expense. For example, a condominium with a cost of $200,000 initially used for residential rental in May has first year depreciation of $4,546 ($200,000 x 2.273 percent).
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4
List the depreciation on IRS Form 4562. Use Line 19 for the first year of depreciation and Line 17 for all subsequent years.
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5
Record the depreciation expense on the tax form where you are reporting your income from using the condominium for rental or business purposes. Individuals use Schedule E for residential rental and Schedule C for proprietorship businesses. Corporations and partnerships list depreciation expense on the first page of their tax returns.
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