IRS publication 527 covers "Basis of property changed to rental use". My question is on the proper duration for the depreciation.

Imagine a home was bought for $60k in 1950, with $10k of land value. $10k of improvements were made over the years. In 1990, 25% of square footage of the home is converted to an in-law unit, and first rented in 1991. The fair market value of the entire home in 1990 is $900k, with $100k in land value.

Publication 527 says "When you change property you held for personal use to rental use (for example, you rent your former home), the basis for depreciation will be the lesser of fair market value or adjusted basis on the date of conversion."

It would seem then the in-law unit basis is $15k, plus the cost of the in-law conversion (25% of the adjusted basis). What is the start date and duration for the depreciation? Does it matter that the actual home had depreciated to $0 for tax (and home office) purposes by 1991?

Now imagine the rental is taken off the market for a decade, then placed back on the market. Does depreciation pick up from that spot, or start anew with the new rental business effort?

  • 1
    Did you actually claim depreciation expense for the entire value of the property over the years?
    – Hart CO
    Commented Jul 27, 2017 at 20:43
  • The numbers above are hypothetical to illustrate the key question. In the actual case the rental unit is 25% of the home, and thus was allocated 25% of the cost basis.
    – Bryce
    Commented Jul 28, 2017 at 1:41


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