Figuring depreciation on a rental condo

May 16, 2008

I recently read that depreciation on a residential condominium converted to a rental property is deductible, but how is the depreciation calculated? Should I base it on the property's current fair market value?

I recently read that depreciation on a residential condominium converted to a rental property is deductible, but how is the depreciation calculated? Should I base it on the property's current fair market value?

Your starting point is either the fair market value at the time of conversion or your adjusted basis, whichever is lower. To figure the adjusted basis, start with the price you paid for the condo and add the cost of any permanent improvements you made. Then check your original property tax bill to see if it includes a value for the land or common areas. If it does, subtract that value. Also subtract any casualty or theft losses claimed on previous tax returns.

You can begin taking depreciation the first month that the condo is ready for a tenant, even if you don't have one yet. It takes 28 or 29 years to claim all the depreciation, depending on whether you start in the first half of the year or the second. For more details, see IRS Publication 946, available at http://www.irs.gov/publications/p946.

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