If a rental property is listed but not yet occupied by tenants in 2024, can the owner start claiming depreciation that year?
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Yes, the owner can generally begin claiming depreciation on a rental property in the year it is placed in service, even if it is not yet occupied by tenants, as long as the property is ready and available for rent and is being actively offered for rental (for example, listed for rent at a fair rental price).
Legal Analysis:
1. Placed in Service Requirement
The IRS defines "placed in service" as the point when a property is ready and available for its specific use, not necessarily when it is actually used. For rental property, this means the property must be ready and available for rent, and the owner must be actively seeking tenants (such as by listing the property for rent). Actual occupancy by a tenant is not required to begin depreciation.
- IRS Publication 527 states:
"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? in chapter 2."
Example: If you finish repairs and list the property for rent in July, but do not find a tenant until September, the property is considered placed in service in July, and depreciation begins then. - IRS Publication 946 further clarifies:
"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.
Placed in Service: You place property in service when it is ready and available for a specific use, whether in a business activity, an income-producing activity, a tax-exempt activity, or a personal activity. Even if you are not using the property, it is in service when it is ready and available for its specific use." - 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."
2. Not Yet Occupied by Tenants
The key factor is not whether the property is occupied, but whether it is available for rent and being actively offered for rental. If the property is vacant but listed for rent and ready for occupancy, depreciation begins. If the property is not yet ready (e.g., still under construction or being renovated), depreciation cannot begin.
- IRS 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? in chapter 2." - IRS Publication 946:
"Even if you are not using the property, it is in service when it is ready and available for its specific use." - Web Article (AccountingInsights):
"Depreciation starts when the property is placed in service, meaning it is ready and available for rent. If a property is purchased but remains vacant while being prepared for rental, depreciation cannot begin until it is actively listed. This rule prevents deductions on properties that are not generating income."
3. Temporary Vacancy
If a property is temporarily vacant between tenants but remains available for rent, depreciation continues. However, if the property is withdrawn from the rental market (e.g., for personal use or major renovations), depreciation must stop until it is again available for rent.
4. Recordkeeping
The owner should keep records showing when the property was ready and available for rent (e.g., date repairs were completed, date listed for rent, advertisements, etc.) in case of IRS inquiry.
5. Conclusion:
If a rental property is listed for rent and ready and available for occupancy in 2024, the owner can begin claiming depreciation for that year, even if no tenant has yet moved in. The critical factor is that the property is placed in service—meaning it is available for rent—not that it is actually rented or occupied.
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