I currently own one rental condo and I’ve been taking $1285 yearly depreciation based on the $35,340 fair market value. I understand when i go to sell in the futre there will be depreciation recapture, regardless if I took depreciation or not. I’ve been told I can take depreciation on the dishwasher, stove, carpet, etc in addition to the depreciation i’m already claiming. Is this correct? If I didn’t take depreciation on these items, is there depreciation recapture here as well? Thanks to all replies.
recapture applies to all depreciation you “could should and would” have taken, whether or not you actually did.
How did you treat those items? if you took them as repair expense, you’re ok. If you treated them as assets (increase to basis) then you should have depreciated them and will be hit with recapture.
you should be depreciating on cost, not FMV.
Mark,
Thanks for the response. I’m taking depreciation based on fmv because I lived in the property for 2 years prior to renting it.
My question was pertaining to the dishwasher, stove, carpet, etc that was already in the property when i purchased it - not that I recently replaced. Do I/can I take depreciation on these items?
they would have been included in your cost. you should be depreciating on cost, not FMV.
I’m taking depreciation on FMV for 2 reasons:
1-That’s what Turbotax advised when I did my taxes.
2-According to the IRS…
“If you used the property for personal purposes before changing it to rental use, its depreciable basis is the lesser of its adjusted basis or its fair market value when you change it to rental use.”
For me, FMV was the lesser.
ok. wow, it’s pretty unusual for FMV to be lower than basis.
so now you need to evaluate that FMV vs your (cost plus whatever those items are). don’t treat them seperately - add them to your original basis.
Since you have already included the appliances in your original depreciation basis, the depreciation you have taken in the past has included these items.
I would wait until replacement to do anything differently. When you replace the refrigerator, for example, create a new capital asset for your depreciation schedule. Depreciate the cost of the new refrigerator over five years. Same with carpet, stove, washer, dryer, and dishwasher. Do not change the depreciation basis for the rest of the property.
When you sell, allocate the sale price for the property to reflectt selling the appliances at their adjusted cost basis. Then, you won’t have any unrecaptured depreciation for the appliances to worry about.
Just my opinion. I am sure there is more than one way to handle this.