Is depreciation allowed in 2024 if a residential property is converted to a rental and made available for lease that year?
Ask Blue J any tax question, then go deeper. Follow up, add client-specific context, and explore the sources behind every answer with Blue J’s generative AI solution for tax research.
Yes, depreciation is allowed in 2024 if a residential property is converted to a rental and made available for lease that year, provided certain requirements are met.
1. Legal Basis
Section 167(a) allows a depreciation deduction for the exhaustion, wear and tear (including obsolescence) of property used in a trade or business or held for the production of income.
Section 168(a) provides that, for tangible property, the depreciation deduction is determined using the applicable depreciation method, recovery period, and convention.
2. When Does Depreciation Begin?
Depreciation begins when the property is "placed in service" for the production of income. "Placed in service" means the property is ready and available for a specific use in a rental activity, even if it is not actually rented yet.
- Example: If you move out of your home, make repairs, and list it for rent, the property is considered placed in service when it is ready and available for rent, not necessarily when a tenant moves in.
3. Requirements for Depreciation
To depreciate the property, all of the following must be true:1. You own the property.2. You use the property in a business or income-producing activity (such as rental).3. The property has a determinable useful life of more than one year.4. The property is placed in service (ready and available for rent).
4. Basis for Depreciation
If you convert a personal residence to rental use, the basis for depreciation is the lesser of:- The property's adjusted basis on the date of conversion, or- The fair market value (FMV) on the date of conversion.
5. Recovery Period and Method
- Residential rental property is depreciated over 27.5 years using the straight-line method under the General Depreciation System (GDS).
- The mid-month convention applies, so depreciation for the first year is prorated based on the month the property is placed in service.
6. Documentation
You should keep records of:- The date the property was made available for rent,- The basis for depreciation (including FMV and adjusted basis at conversion),- Any repairs or improvements made before rental,- The method and recovery period used.
Summary: If you convert a residential property to a rental and make it available for lease in 2024, you may begin depreciating the property in 2024, starting from the month it is ready and available for rent, even if it is not yet rented. The depreciation deduction is calculated using the straight-line method over 27.5 years, with the basis being the lesser of the adjusted basis or FMV at the time of conversion.
Was this answer helpful?
What Blue J customers are saying
“We are excited to use Blue J to elevate the initial work product our team is able to produce."
"We’re incorporating Blue J to ensure our people are well-equipped with a research tool that delivers on both ease of use and quality of deliverable. It will save us a lot of time as a starting point, so we can focus our efforts on the analysis. Ultimately, it helps us get to the right answer, faster.”
"We’re incorporating Blue J to ensure our people are well-equipped with a research tool that delivers on both ease of use and quality of deliverable. It will save us a lot of time as a starting point, so we can focus our efforts on the analysis. Ultimately, it helps us get to the right answer, faster.”
"We had used Checkpoint for a long time but found it wasn’t particularly well-used in our practice."
"A lot of our practitioners would have to turn to Google to find what they were looking for, which of course isn’t ideal. Blue J is a real game-changer when it comes to this, since it combines the efficiency of Google with the authoritative tax materials our people really need to serve their clients best. At ELO, we pride ourselves on providing services that are focused on value for clients and exceeding their expectations. Adding Blue J to our toolbox will enable us to do just that, as we continue to evolve our service offerings to better serve our clients’ needs.”
"A lot of our practitioners would have to turn to Google to find what they were looking for, which of course isn’t ideal. Blue J is a real game-changer when it comes to this, since it combines the efficiency of Google with the authoritative tax materials our people really need to serve their clients best. At ELO, we pride ourselves on providing services that are focused on value for clients and exceeding their expectations. Adding Blue J to our toolbox will enable us to do just that, as we continue to evolve our service offerings to better serve our clients’ needs.”
"We find this tool to be a game-changer for us and our clients.”
“We had the opportunity to pilot some other AI solutions in the market, and found that the improvement over traditional search was limited - except in Blue J’s case, where the efficiency gain over traditional research methods is significant."
“We had the opportunity to pilot some other AI solutions in the market, and found that the improvement over traditional search was limited - except in Blue J’s case, where the efficiency gain over traditional research methods is significant."
“Blue J is an exciting technology because it enables the practitioner to remain in the driver’s seat of the analysis."
"Thoughtful functions are included to encourage and facilitate deeper analysis, not to replace or reduce it. We’ll continue to find new and impactful ways to leverage the technology, which has benefited our clients and staff alike. At RSM we strive to be compelling to our clients and to be digital by embracing new technologies to fulfill that promise.”
"Thoughtful functions are included to encourage and facilitate deeper analysis, not to replace or reduce it. We’ll continue to find new and impactful ways to leverage the technology, which has benefited our clients and staff alike. At RSM we strive to be compelling to our clients and to be digital by embracing new technologies to fulfill that promise.”
"We wanted to have a tool that people were using at all staff levels."
"We wanted something that lived up on their third screen - something that would be available and helpful to them every day. What we've found is it's been easy to get people to get into the habit of using Blue J because it helps people. Blue J allows us to quickly respond to client questions in a way that they can understand it, which helps us deal with the volume of client questions that come in. We were up and running very quickly with Blue J - within 5 minutes, our staff understood how this will be helpful, and the rest of the training program is refining prompting skills and building use cases and best practices."
"We wanted something that lived up on their third screen - something that would be available and helpful to them every day. What we've found is it's been easy to get people to get into the habit of using Blue J because it helps people. Blue J allows us to quickly respond to client questions in a way that they can understand it, which helps us deal with the volume of client questions that come in. We were up and running very quickly with Blue J - within 5 minutes, our staff understood how this will be helpful, and the rest of the training program is refining prompting skills and building use cases and best practices."
