Residential real estate is depreciated over 27 ½ years. On a new rental property, the basis would be the purchase price of the home, minus the value of the land. However, when turning a primary residence into a rental, the rules are a little different.
The starting point for basis for depreciation is the lower of (1) the adjusted basis on the date of conversion, or (2) the properties fair market value at the time of conversion.
Knowing this is a good possibility in the future, it’s a good idea to keep a folder with any of your capital improvements to the primary residence. When you put the rental property into service, you’ll also start tracking repairs & maintenance.
Additionally, if there are major renovations or remodeling costs that will need to be done, the renovations should be done after you put the property in service as a rental. This may allow for a higher depreciable basis for the property and allow you to turn repairs into deductions. This is why most people try and purchase new appliances after the home is put on the market for rent, better tax savings.
As the saying goes, “begin with the end in mind.” For those of you that are comfortable doing your own taxes, good luck!
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DISCLAIMER: The above material has been prepared for informational purposes only, containing opinions of the provider, and is not intended to provide, and should not be relied on for, tax, legal, or accounting advice. Please consider consulting tax, legal, and accounting advisors before engaging in any transaction.
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