Rental Tax StrategiesDepreciation you were required to take

Publication 527 tells owners to claim the right depreciation each year. If the return skips the line, basis still falls by the amount you could have deducted. That rule surprises people who skipped depreciation on purpose, hoping to save basis for a future sale. The basis was not saved. The deduction for that year was.

Residential rental buildings are recovered over a long life. Land is not depreciated. A cost that is only land, or a split that puts too much on the building, both cause trouble later. We ask how the purchase price was divided. We do not invent a land ratio to make the first year look generous.

When depreciation was never taken, the conversation is about catching it up on the current return under the change in accounting method the IRS provides for that miss, not about quietly adding a fat number to this year's repairs. We will say if that path even matters. If the loss would be held anyway, a catch-up that enlarges a held loss is not urgent.

The purchase price is the start. Some closing charges are added to it. Amounts the seller paid on your behalf can belong there too. Loan costs and points are often recovered over the loan, on their own schedule, rather than thrown into the building's life or into this year's expenses.

A later improvement is its own asset with its own start date. A new roof, a new kitchen that is more than a repair, an addition. Each one begins depreciation when it is placed in service, which is when it is ready and available for rent, not when you paid the deposit.

We keep a list: description, cost, date placed in service, and the life. The list is the books. The return reads the list. A shoebox of receipts without dates is how the same roof gets deducted twice, or not at all.

Some personal property inside a rental, and some land improvements, have shorter lives than the building. A study can reclassify pieces that were dumped into the building line. Bonus depreciation, at the rate in force when the asset was placed in service, can pull recovery forward. Both are timing. Neither one changes the passive rules.

If you can use the loss, timing matters and we will talk about it while the year is open. If you cannot use the loss, a study that creates a larger held number is a bill for a result the return will not show. We say that before the study is ordered. We do not sell the study and we do not sign it.

Send last year's return if you think the depreciation line is missing. We will look. No recovery period is reprinted here as a promise, because the class of the asset decides the life and the asset is yours, not a sample.