Does the taxpayer become eligible to begin depreciation in 2024 if the property is placed in service and ready to rent that year?
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Yes, the taxpayer becomes eligible to begin depreciation in 2024 if the property is placed in service and ready to rent that year.
Legal Analysis:
1. Placed in Service Requirement
To claim depreciation on a rental property, the property must be "placed in service"—that is, it must be ready and available for a specific use in a trade or business or for the production of income, even if it is not actually rented yet. The IRS defines "placed in service" as the point when the property is ready and available for its intended use, not necessarily when it is first rented or occupied by a tenant.
- Example: If you purchase a house, make necessary repairs, and list it for rent in July 2024, the property is considered placed in service in July 2024, even if the first tenant does not move in until a later date. You may begin depreciating the property in 2024.
2. Eligibility for Depreciation
The property must meet all of the following requirements to be depreciable:- You own the property.- You use the property in your business or income-producing activity (such as rental).- The property has a determinable useful life and is expected to last more than one year.
3. Depreciation Start Date
Depreciation begins in the month the property is placed in service. For residential rental property, the IRS requires the use of the mid-month convention, meaning you get a half-month's depreciation for the month the property is placed in service.
4. Supporting Authority
- Publication 527: "You can begin to depreciate rental property when it is ready and available for rent. See Placed in Service under When Does Depreciation Begin and End?"
- Publication 946: "You begin to depreciate your property when you place it in service for use in your trade or business or for the production of income. You stop depreciating property either when you have fully recovered your cost or other basis or when you retire it from service, whichever happens first."
- Treasury Regulation §1.167(a)-11(e)(1): "Property is first placed in service when first placed in a condition or state of readiness and availability for a specifically assigned function, whether in a trade or business, in the production of income, in a tax-exempt activity, or in a personal activity."
5. Practical Application
If the taxpayer's property is ready and available for rent in 2024 (e.g., advertised for rent, all necessary repairs completed), the taxpayer is eligible to begin depreciation in 2024, regardless of whether a tenant actually occupies the property in that year.
6. Conclusion
The taxpayer becomes eligible to begin depreciation in 2024 if the property is placed in service and ready to rent that year, even if it is not yet actually rented to a tenant.
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