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Depreciation

How to deduct depreciation?

As you learned in Chapter 12 of the free tax course, you can deduct some or all of what you paid for income producing property by taking yearly depreciation. For rental real property acquired or converted to rental use after 1986, you will generally use the modified accelerated cost recovery system or MACRS to figure your depreciation deduction.

How to figure out depreciation?

You figure depreciation for property used in most rental activities using the MACRS General Depreciation System or GDS. You can deduct depreciation only for the part of your property used for rental purposes.

To depreciate your rental property, multiply the basis of the property by the depreciation rate found in the applicable MACRS percentage table. The basis of your real property is usually its cost (excluding the land value) increased by any improvements made to the property.

Depreciation

Depreciation of real properties

Real property is depreciated using the mid month convention. Any personal property (appliances, furniture) used in your rental activities is depreciated using the half year or mid quarter convention.

Depreciation of residential rental properties

Residential rental property is depreciated using the straight line method over 27.5 years.

Depreciation of nonresidential rental properties

Nonresidential real property is depreciated over:

  • 31.5 years if placed in service before 5/13/1993 and over
  • 39 years if placed in service after 5/12/1993.

Land improvement depreciation & others depreciations

Depreciate land improvements (roads, shrubbery, fences), furniture, and appliances over the appropriate recovery period for the property class of each.

Appliances, furniture, carpets, etc. used in a rental real estate activity are classified as 5-year property.

The table here summarizes the MACRS recovery periods for property used in rental activities.


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