I?m looking at publication 946 under the general heading ?When Does Depreciation Begin and End??, specific heading ?Retired From Service?, it says:
You stop depreciation property when your retire it from service, even if you have not fully recovered its cost or other basis. You retire property from service when you permanently withdraw it from use in trade or business or from use in the production of income because of any of the following events.
You sell or exchange the property.
You convert the property to personal use.
You abandon the property.
You transfer the property to a supplies or scrap account.
The property is destroyed.
Since I moved in, it would seem I converted it to personal use, therefore not eligible for further depreciation. So I?m not sure your cpa is entirely correct on that.
Re the 25k loss against earned income, I can?t do that because my non re income is too high and I might continue to be employed (it doesn?t stink enough for me to quit, I?m comfortable), but I think you?re saying, and that?s what I think, that it just carries forward until the property is finally sold, then can be used first against passive gain from the sale, then what?s left against earned income.
Turbo tax is somehow applying all my passive loss carryover from previous years against my earned income, causing me to pay almost zero tax. I think I?m going to have to somehow Cajole TT to stop depreciation and carry forward. As much as I?d like to pay zero tax it?s too hard to believe.
If you move into a rental that you own, how do you handle the depreciation and passive loss carryover? Do you simply stop depreciating, except for the part of the year it was a rental, and keep carrying the passive loss forward until the property is finally sold?
Or, can you use the passive loss carryover to offset earned income now, as if it had been sold?
Posted by Frank Chin on April 04, 2005 at 19:08:38:
Dave:
You’re right. I wasn’t focusing on “If you move into a rental that you own”.
You’re right, in that case, you stop depreciating. But you’ll still have carryover, recapture etc. from the time it was a rental, till the time you sell.
I had a more complex situation. I had a 3 family in which I lived in one unit for a number of years. Then I took over a second unit for a short while. So I have to stop depreciating.
Then I moved out of the place, to another property, renting out both units that I used myself, one of which was depreciated for a short while as a rental, then no depreciation as OO, then as a rental again.
Another complication came up where I spent over 30K rehabbing the owners unit, then moved. We have to redesignate the original basis of the owner unit to the rental PLUS determine the how to depreciate the improvements as it was used for a short while by the owner.
Then, on top of which, we had passive carryover thrown in. Finally it was sold.
Posted by Frank Chin on April 04, 2005 at 17:11:27:
Dave:
The way my CPA did it for me was:
-You keep depreciating as noraml.
-Amount disallowed goes into a carryover
-Prior to sale, carryover can be used.
Example:
>in one year, you earned 150K income, w/o of 10K, and carry over 10K.
>In year two, you earned 150K income, w/o of 10K, and carry over 10K. Total now 20K
>On year three, you’re unemployed, you have current 10K in w/o. You can take 15K from the carryover up to maximum of 25K allowed. You got 5K remaining.
-Any leftover carryover is used at time of sale. If you sell in year four, you get to use the 5K.