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Lev, Tax Advisor
Category: Tax
Satisfied Customers: 29571
Experience:  Taxes, Immigration, Labor Relations
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How is foreign rental property depreciation calculated?

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We have foreign residential rental real estate as well as foreign commercial rental real estate. How to depreciation method rule work for US taxpayer? How to calculate land value of Foreign rental real estate?

The depreciation is not based on the property location. Residential rental properties - either located in US or abroad - for US tax purposes - are depreciated over 27.5 years.
The value of the land and the value of the building may be prorated based on any reasonable method - the IS doesn't dictate which method should be used. The most common method is to base the proration on the tax record - for instance if according to a local tax record 20% assigned to the land and 80% to the building - that proportion may be used to prorate the purchase price.
The basis should be adjusted by improvements and some other expenses.
You may use a different method to prorate the cost of the land and of the building.


What happen to the Commercial property's depreciation in foreign county that is part of question? I appreciate your answer. Thank you.


Sorry - I overlooked that portion of your question.
Nonresidential (commercial) real property placed in service after May 13, 1993 is depreciated over over 39 years (recovery period) on a straight-line basis.
Residential rental property is also depreciated on a straight-line basis over 27.5 years.
For residential rental property - use Table A-6 - page 77 -
For nonresidential (commercial) real property - use Table A-7a - page 78.
There is no difference if the property is located in the US or abroad.

See page 39 -

Under GDS the property is depreciated over:

Residential rental property . . . . . . . 27.5 years

see page 35

Although your property may qualify for GDS, you can elect to use ADS. Once you make this election, you can never revoke it.

Under ADS - see page 40 - the recovery period:

Residential rental property . . . . . . . . . . . . 40 years

As a practical matter ADS is rare used for residential rental properties - none of my clients use it. While you may choose ADS - I do not see anywhere in publication 946 that the IRS recommends ADS.

Let me know if you still have any concern.

Let me know if you need any help.
Please be sure to ask for clarification as needed.

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