I converted my primary residence into a rental property last year. For depreciation purposes, I must choose between GDS ("General Depreciation System") or ADS ("Alternative Depreciation System"). Once I choose, I can never change it.
The primary difference seems to be that ADS gives you a 40-year depreciation duration, whereas the GDS is 27.5 years for residential rental property.
I'm new to the concept of depreciation. My basic understanding is that with a longer depreciation period you get a smaller (passive) deduction each year. But, your cost basis doesn't decrease as quickly. So, if I'm going to sell the property in 10 years, I'll have less capital gains due to the higher basis.
Currently, the property is giving me a small passive loss. But I have no passive income, so I can't use the deduction.
What else should I consider before making the choice? (e.g. inheritance issues, converting it back to a primary residence, etc?)
From IRS Pub 527 (2014):
If you choose to use ADS for your residential rental property, the election must be made in the first year the property is placed in service. Once you make this election, you can never revoke it. For property placed in service during 2014, you make the election to use ADS by entering the depreciation on Form 4562, Part III, Section C, line 20c.