Question

William bought a new home and decided to convert his original home into a rental. At the time it was rented, the adjusted basis of the rental home was $ 125,000, including a land value of $ 20,000. The FMV was $ 250,000, including a land value of $ 40,000. He advertised the house for rent on June 1, 2017, and it was rented June 15, 2017. What is the depreciation for the first year.

1) $ 2,069 2) $ 2,463 3) $ 4,137 and 4) $ 4,925

Answer 1

Calculating the depreciation for the first year:

Before calculating the depreciation we have to calculate the cost of basis for such rental property.When a personal residence has been converted for the business use or for use in getting in the income,in such case the basis for the depreciation is the lower of the adjusted basis of such property or FMV of such property excluding land.

(A) Adjusted basis of property excluding land(125000-20000) $105000

(B) FMV of property excluding land (250000-40000) $ 210000

Lower of the A or B = 105000

As per IRS life of the such asset is 27.5 years

Depreciation for the year = 105000/27.5 * 6.5months = $2069

Note :For the purpose of the above the accounting period has been taken from Jan - Dec and and also since no life of the asset was provided IRS notified rate has been taken