Can depreciation on a rental property begin in the same year it is ready to rent, such as 2024?
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Yes, depreciation on a rental property can begin in the same year it is ready and available for rent, even if it is not actually rented to a tenant during that year.
Legal Reasoning and Details:
1. Placed in Service Requirement
Depreciation begins when property is "placed in service," which means it is ready and available for a specific use in your business or income-producing activity, regardless of whether it is actually being used or generating income at that moment.
- According to IRS Publication 527: "You can begin to depreciate rental property when it is ready and available for rent." The property is considered placed in service when it is ready and available for its specific use, even if it is not actually rented yet.
- Example from Publication 527: If you make repairs and have the property ready for rent in July, and begin to advertise it for rent, the property is considered placed in service in July, even if it is not actually rented until September. You can begin to depreciate the house in July.
2. IRS and Code Authority
- The Internal Revenue Code, Section 167(a), allows a depreciation deduction for property used in a trade or business or held for the production of income.
- Section 168 (MACRS) provides that the depreciation deduction is determined by using the applicable method, recovery period, and convention, but all are predicated on the property being placed in service.
3. Practical Application
- If you purchase a property, make it ready for rent (repairs, advertising, etc.), and it is available for rent in 2024, you may begin depreciating it in 2024, even if the first tenant does not move in until a later date.
- If you convert a personal residence to a rental property, you begin depreciation on the date it is available for rent, not the date it is actually rented.
4. Supporting Example
From IRS Publication 527:
"On April 6, you purchased a house to use as residential rental property. You made extensive repairs to the house and had it ready for rent on July 5. You began to advertise the house for rent in July and actually rented it beginning September 1. The house is considered placed in service in July when it was ready and available for rent. You can begin to depreciate the house in July."
5. Idle Property
- Even if the property is temporarily vacant (for example, between tenants), you continue to depreciate it as long as it is held for rental purposes and is available for rent.
Conclusion: You may begin depreciating a rental property in the same year it is ready and available for rent, such as 2024, even if it is not actually rented to a tenant during that year. The key requirement is that the property is placed in service—meaning it is ready and available for its intended rental use.
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