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Wendy Reed
Wendy Reed, Enrolled Agent
Category: Tax
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Experience:  15+ years tax preparation and tax advice.
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Question about correct calculation of allowable depreciation

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Question about correct calculation of allowable depreciation of residential rental:

Assume principal residence Jul 22, 2005 through May 31, 2009 converted to rental and operated as such (with schedule E's) June 1, 2009 through Feb 13, 2012.

Assume original cost plus settlement costs effecting basis totaling to: $557,709.92.

Assume improvements for rental (installed during month of conversion - June 2009) of: $278 (new dishwasher), $572 (two new toilets) added to depreciable basis of home, in one lump sum, over 27.5 years S/L MACRS.

Assume FMV of total land and building combined of $418,000 at time of conversion (June 2009) according to

Assume FMV of building of $226,000 and value of land of $185,000 according to County Assessor via property tax bill close to time of conversion (Oct 2009).

Assume we choose the estimate as the FMV.

Assume value apportionment to building (for depreciation basis) of 55% based on County Assessor's building/property ratio.

Assume that amendments to years 2009 through 2012 make depreciation actually taken on rental June 1, 2009 through Feb 13, 2012 via Schedule E equal to the correct allowable amount based on 27.5 years and S/L depreciation. Can you please verify what this value would be? I get $22,338 for allowable using a MACRS table using mid-month convention for Feb 2012. My calculation looks like (with depreciation percentages pulled from p73, Table A-6, IRS Pub 946):

Sum of:

For 2009: (zillow FMV + "attached" improvements)*55%*1.97% = $4,528.34

For 2010 through 2011: 2*(zillow FMV + "attached" improvements)*55%*3.636% = $16,752

For 2012: ((zillow FMV + "attached" improvements)*55%*3.636%)/12*1.5 = $1,047

Thank you for giving me the opportunity to assist you. I will give the best answer that I can with the information provided.

Okay, I am getting 418K * .55 = 229900, plus improvements = 230750 as depreciable basis.

The first year is 4545.78

The second two years are each 8390.07

And the year of disposition is 8390.07 X 1.5/12 (1 1/2 month fraction of year) = 1048.76

I am guessing we are a few dollars off by the addition of improvements to the building basis.

Please let me know if I can assist you further.
Wendy Reed and 2 other Tax Specialists are ready to help you
Customer: replied 3 years ago.

Awesome, thanks Wendy. Glad to know I was doing it correctly. When I ran the calculations again without any rounding we had the exact same numbers.