Can You Claim Depreciation on Your House if It Sits Empty?
If you own rental property, or if you own a vacation home that you rent when you are not in residence, you may be able to claim a deduction for depreciation. The Internal Revenue Service allows you to continue to depreciate the house even if it is temporarily empty. However, you must follow specific rules to ensure that you report depreciation properly.
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Definition of a Dwelling Unit
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The Internal Revenue Service defines a dwelling unit as a property containing basic accommodations, such as kitchen facilities, a bathroom and a place to sleep. The definition includes single-occupancy homes, mobile homes, apartments, boats and condominiums, but does not include inns, motels or other properties that are regularly rented to transient tenants.
When Depreciation Begins and Ends
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You may begin depreciating the house you purchase as soon as you have it available for tenants to move in. If you are converting a property you already own to a rental property, begin depreciating it in the year you make the conversion. Depreciation ends when you sell the property, convert it to personal use or recover your costs, whichever comes first. You must stop depreciating the home when you sell or convert it even if you have not recovered all of your costs. You cannot claim depreciation for a property you dispose of during the same year in which you acquired it or converted it to rental property.
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What May be Depreciated
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Land is not depreciable. If you purchased a property, you must separate the cost of the home from the cost of the land. You must also depreciate improvements; the IRS defines an improvement as adding to the property's value, making alterations to put the property to a different use or prolonging the life of the property. As an example, if high winds blow a few shingles off the roof, the cost to repair the roof is an expense. However, if you replace the entire roof, you must depreciate the cost. You may include not only the cost of the home, but also fees to record the sale, survey the property, obtain an abstract or purchase title insurance. You may also include any fees you pay for the seller, such as Realtor commissions or back taxes. You may include landscaping costs, even though you cannot claim depreciation on the land.
Property You Also Use
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Assume you own a vacation cabin that you use every year from October through December. You normally rent the property from January through September. You must prorate the depreciation and deduct only the portion related to the production of income. In other words, you may deduct only 75 percent of the depreciation. For tax purposes, if you allow friends or family members to use the property for free or at a rent below the fair value for the property, that time counts as personal use and is not deductible. If you cannot rent the property for at least 15 days during the year because of personal use, the IRS does not consider it income-producing property and you cannot deduct depreciation. Nor can you deduct depreciation if your personal use amounts to more than 10 percent of the total time it is available for rent.
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