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Rental Property conversion multiple times since 2011

Level 1

Client converted personal residence to rental  from 2011 to 2013.  2011 basis at time of conversion was 375 home 125 land in  San Diego. Depreciation for 3 years was 23579.  Client moved back into house as primary residence in 2014.  In 2018 client moved out and rented house again. How do I re enter this rental property to the 2018 tax return depreciation schedule.  Does the basis begin with the value at the time of the 2018 rental date and start over. Do I use the 2011 original basis and prior deprecation. 

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Level 8

Conversion to personal property is treated as a disposition with no gain recognition.


When converting again to rental use you will use the lower of FMV or adjusted basis - almost always in this situation it will be the adjusted basis, with a class life of 27.5 yr (residential rental).  Make sure to track the previous depreciation as it will be subject to unrecaptured s1250 gain on disposition. 

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Level 8

Conversion to personal property is treated as a disposition with no gain recognition.


When converting again to rental use you will use the lower of FMV or adjusted basis - almost always in this situation it will be the adjusted basis, with a class life of 27.5 yr (residential rental).  Make sure to track the previous depreciation as it will be subject to unrecaptured s1250 gain on disposition. 

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Level 1
Thank you for responding! When converting again in 2018, what determines the new adjusted basis? This house is in San Diego and originally purchased over 10 years ago. The values have sky rocketed.
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Level 8
Your adjusted basis is the history of actual cash investments and deductions - purchase price plus improvements less depreciation.
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Level 1
TaxMonkey - Do you have a reference where it states that the depreciation life will start over at 27.5 years? It makes sense, I'm just wondering for my own personal notes.
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Level 13
§1.168(i)-4(c) shows it is treated as a disposition.  That means when when you start using it as a rental again, it is like it is "placed in service" for the first time.
https://www.law.cornell.edu/cfr/text/26/1.168(i)-4#c
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Level 1
Thank you!
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