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jgordosea, Enrolled Agent
Category: Tax
Satisfied Customers: 3161
Experience:  I've prepared all types of taxes since 1987.
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I have a house that I used as a primary residence but recently

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I have a house that I used as a primary residence but recently have considered it a vacation property because I rarely went back to it as I've been on the road traveling in an RV and also spend time at another vacation property in another state.

In 2012, I decided to rent it out for five months through a property manager. I will have rental income for 2012 and then for one month in 2013. I am now trying to sell the property and do not intend to rent it again.

I believe I understand about how to allocate deductible expenses and by doing so, will not be showing a loss but a slight gain on Schedule E for 2012.

EXCEPT: I did not bother deducting any depreciation expense because I didn't figure it worth the bother of calculating due to the temporary short term nature of the rental.

QUESTION: I now am reading that the IRS requires that a rental property to be depreciated. Is this true? ...especially in my circumstances? If not true, will there be any future ramifications by not doing so? when selling the property?



In a manner there is not a strict requirement to claim the depreciation expense.

But, there is a disadvantage to not claiming the expense.


When the property is sold the cost basis used for gain or loss has to be reduced by the allowed or allowable depreciation expense, whether or not it was ever taken.

So, not taking the expense makes the gain larger or the loss smaller when sold.


For a home that can qualify for exclusion of gain that exclusion can not apply to the allowed or allowable depreciation. That part of the sale will be taxed when the home is sold for a gain.


It is also true, though, that the amounts may not be very large if the depreciation was only for one year or less. Residential rental property is based on 27 1/2 years of depreciation. So one year is about 3.63% and five months is about 1.36%.


For a 100,000 property that is about $3636 expense for one year and about $1,364 for five months. If you had to pay 15% income tax on 3636 that is about $545 and on 1364 is about $205. Some taxpayers in the lower tax brackets can pay less than that.

For more details on 2013 rates see


The future ramification of not claiming the depreciation is possibly paying more tax on the gain when sold.


Please ask if you need more discussion or clarification.

Thank you.





Customer: replied 3 years ago.

Thank you for your explanation.


By taking the depreciation expense for 2012, I'm thinking it will require showing a loss on Schedule E and more complications because of it being a loss ...i.e. restrictions on what can be deducted? --correct?


Can I choose not to claim some expenses so that I will continue to show a slight profit?


And, the house will definitely sell for a loss when it does eventually sell so there will not be any capital gain considerations. Will that matter then when it comes to not declaring any depreciation expense for 2012?


Thank you.



Hello again,


You are quite welcome.


A passive loss on the rental is allowed unless your adjusted gross income is more than $150,000. For more details see


When you sign the return you attest that is it "true, correct and complete to the best of your knowledge" Omitting income or expense would make that statement untrue.


If the home sells for a loss there will be slighter lower loss since the depreciation reduces your cost basis (whether taken or not) and no gain to report.

If this is not a personal use sale then less loss will be available to offset other capital gain and if it is a personal use property no loss is allowed so the reduced loss does not matter.


Hope that clarifies for you; but ask if you still need more help.

Thank you.

Customer: replied 3 years ago.

Thank you. So since the house will be sold for a "personal loss," then taking the depreciation expense deduction for 2012 will not be of significance one way or the other, correct?


Since it sounds as if you have implied that depreciation expense is not required by the IRS to be taken for this temporary short term rental and I'm positive that the house will be sold at a loss, I'm tempted not to take the depreciation expense deduction for 2012.


Again, I'm not breaking any IRS laws by not taking it, correct?


Thanks, hal

Hello again,

You are welcome.

A larger or smaller loss on personal use property makes no change to the tax return.

As mentioned,there is not a strict requirement to claim the depreciation expense and is not punishable.
If there was an examination there would be no additional tax due and no penalty for not claiming the depreciation.

It is your tax return and you can prepare, sign and send it as you like.

Hope you have all you need.
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