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Jonathan Tierney
Jonathan Tierney, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 322
Experience:  Tax Accountant at Praxair, Inc.
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I have 3 residential real estate properties that I have been

Customer Question

I have 3 residential real estate properties that I have been taking depreciation on for the last 5 yrs or so. Can I take these properties "out of service" and what does this mean as far as taxes are concerned and does the business still own the properties or must they be sold?
Submitted: 1 year ago.
Category: Tax
Expert:  Jonathan Tierney replied 1 year ago.

Hi, my name is ***** ***** my goal here is to provide you with the most complete and accurate answer possible.

You can't really take an asset out of service unless you convert it to another business or personal use. Even if you can’t take the losses, due passive activity rules, you free up the all the losses when you sell the property. If you have any gain due to to depreciation reducing your basis in the property, you have a section 1250 gain would be taxed that special rates. In addition, when the losses are released when you to sell the property, the losses are taken at ordinary rates, so you’re better off taking depreciation.

Why do you want to take the properties out of service?.

I hope this answers your question. Please let me know if I can clarify anything or answer any additional questions. Thanks, Jonathan

Customer: replied 1 year ago.
I can't get ahold of my cpa due to the weekend, but she asked me if I wanted to take the properties out of service last year and I wasn't sure why she asked me that. I think she said I already had enough write offs with the business and did not need to use the properties.
Expert:  Jonathan Tierney replied 1 year ago.

Are you able to use the properties for some other purpose than rental real estate. The problem with not deducting the depreciation is that you are still required to adjust your basis downward for any depreciation you were entitled to deduct but did not. See IRS Publication 946 page 13 in the upper left corner under the bold title "Basis Adjustment for depreciation allowed or allowable." You can find the publication in pdf here:

I hope this helps. Let me know if I can answer anything additional. Thanks, Jonathan

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