John M. Hoffman & Associates CPAs
Frequently Asked Tax Questions
Deductions for Rental Property Include
Depreciation:
Depreciation is the deduction for an asset that has a long life. Recouping the cost of a building over a period of time, intended to reflect wear and tear is known as depreciation.
The government sets the life over which an asset’s cost is recovered. For example residential rental property is depreciated over 27.5 years. Commercial rental property is depreciated over 39 years.
Depreciation for real estate recently acquired is computed on a straight line basis. In simple terms the cost of the depreciable portion of the asset is divided by the designated useful life.
In the year of acquisition or disposition, a mid month convention is used to compute depreciation. This means that one half month depreciation is allowed for the month of acquisition or disposition irrespective of the specific day within the month. So, if a commercial property is acquired on July 2, the depreciation is calculated as cost divided by 39, divided by 12, times 5.5. The easy way to compute the depreciation is to get us the information and let us do it.
We always ask for a copy of the settlement statement for real estate aquisitions. We also ask for anything that can help us to allocate the cost of real estate between depreciable building and non-depreciable land.
