The IRS Deductions Blog

Posts Tagged ‘building’

Question: Depreciation method que for TAX purpose.?

What is the difference between these depreciation method, when can it be used? GDS MACRS, straight line, 27.5 years & ADS MACRS, straight line, 40 years

Ex
Bought a property in Dec 2003
converted to rental in January 2005
Tax prepare used 100,000 (fake figure) as a base and in line 19h of form 4562 wrote 1-1-05, 100,000, 27.5, MM, S/L in subsequent column and In column (g) of the same line (19h) he wrote 2500 as depreciation deduction.

Which above (GDS/ADS) method did he used? Why is he depreciating property over 40 year but writing 27.5 years as a recovery period? I’m confused. Pl advice.

Is Interest on Line of credit (home equity) of this home used to bring down the principle of other rental property fully deductible?

I got a form 1098-T (full time), In box 1 it says $1000 and in BOX 4. IT SAYS 10.25. what’s the effect of the amount in box 4.

Answer to any question will be helpful, Thx

Answer: Residential real property is always depreciated on the 27.5 year schedule. Commercial real property is depreciated on the 40 year schedule. In either case, only the value of the improvements (buildings) are depreciated.

He had to use GDS since it’s a residential rental.

If he took a depreciation deduction of $2,500 it would look like he assigned $68,750 as the value of the improvements unless this was the first year of depreciation. (It would be apportioned in the first year depending upon when the asset was placed in service.) Ask him how he arrived at his numbers, he should be able to explain it easily enough.

Any interest expenses on the rental are deductible. You are not limited to mortgage and HELO interest. You can also deduct credit card interest and personal or other loan interest that is attributable to the rental property. When I was a landlord I maintained a credit card for exclusive use on my rentals to keep the bookkeeping simple.

Box 4 on Form 1098-T are for prior years. You might need to amend a prior year’s return. See IRS Pub 970 for further information.

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