When does rental-property depreciation start?
Depreciation begins when the property is ready and available for its intended rental use, not necessarily when a tenant first moves in or when the purchase closes.
The tax treatment
Depreciation begins when the property is ready and available for its intended rental use, not necessarily when a tenant first moves in or when the purchase closes. This is a federal income tax starting point; the contract, ownership, accounting method, and actual use can change the result. State and local treatment should be checked separately.
The decision to make before filing
Pin down the date repairs ended and active rental marketing began; separate later improvements into their own placed-in-service dates. The useful planning step is to resolve the classification while the underlying documents are still available, then reconcile it to the books and the prior-year return. If the transaction spans more than one year, track the opening balance and what happened to it afterward.
Illustrative example
A buyer closes on a duplex in March, replaces unsafe wiring through May, and first advertises it for rent in June. The owner should not begin building depreciation merely because title transferred in March. Dated contractor completion and listings establish when it became ready and available.
Records that support the position
Keep dated listings, inspection records, contractor completion invoices, and lease applications. Tie amounts on the return to bank activity and the agreement. When several assets, people, or uses are involved, write down the allocation method and apply it consistently. A short dated workpaper is easier to defend than a reconstructed explanation years later.
A common reporting error
Starting depreciation on closing day while major renovations prevent occupancy can accelerate it improperly. Review both sides of the entry: a payment can affect income, basis, liability, or an expense at different times. A correct cash total alone does not establish the correct tax character.
Where to verify the rule
Start with IRS Publication 527: Residential Rental Property. Its examples and cross-references explain the underlying federal rule; check the current version and any later IRS guidance for the year at issue. For a coordinated review of related deductions and limitations, see Real estate tax planning.
Related Reading
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