How do you calculate depreciation on rental property?
In Massachusetts in 1983, I bought a family leasing income property for $80,000. What is the depreciation I can claim for my 2008 taxes, if any? I did not claim any because I was told there was no depreciation left to be claimed on the property– because I had owned it for so long. Is this right? Please help me with this! Many thanks.
If you bought in 1983 and did not do any improvments, the property is probably fully depreciated.
Helen, EA in PA
Residential real estate is depreciated on a 27.5 year straight line schedule. Property placed in service in 1983 would be fully depreciated in 2010 or 2011 depending upon when in 1983 it was placed in service. Since it is depreciated on a straight line schedule the annual depreciation amount will be the same each year (aside from the first and last years) so your 2008 depreciation will be the same as the 2007 depreciation.
Any major repairs or renovations would be depreciated on the same 27.5 year straight line schedule as a separate line entry on the depreciation schedule.
Edit: Oops! Forgot about the ancient ACRS rules! (Thanks, ninasgramma!) Yes, you would be fully depreciated by now.
When did you place the property in service as a leasing property? If it was 1983, you used the ACRS system which depreciated the property over 15 years. So you would not have taken any deprciation for the last ten years or so.
If you placed the property in service after 1986, you use the MACRS system. In this system you have 27.5 years of depreciation, which extends over 29 tax years because the first and last year are incomplete years for depreciation. You would have five or more years left. For each full year of service, you would take about $2,900 depreciation if your basis is $80,000.