What is the recovery period for foreign residential rental property depreciation under U.S. tax law?
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The recovery period for foreign residential rental property depreciation under U.S. tax law is 30 years, using the straight-line method under the Alternative Depreciation System (ADS).
1. Legal Analysis:
General Rule for U.S. Residential Rental Property: Under the General Depreciation System (GDS), residential rental property (defined as a building or structure if 80% or more of the gross rental income is from dwelling units) is depreciated over 27.5 years using the straight-line method and the mid-month convention.
Foreign Use Requirement for ADS: However, for property used predominantly outside the United States, the law requires the use of the Alternative Depreciation System (ADS).
- Subsection 168(g)(1)(A) states that any tangible property which during the taxable year is used predominantly outside the United States must be depreciated under ADS.
- Under ADS, the recovery period for residential rental property is 30 years for property placed in service after December 31, 2017, and 40 years for property placed in service before January 1, 2018.
- "In the case of... residential rental property, the recovery period shall be 30 years" under ADS for property placed in service after December 31, 2017.
- The straight-line method and the mid-month convention are required.
IRS Publications:
- IRS Publication 527 confirms that foreign residential rental property must be depreciated using ADS, and the recovery period is 30 years for property placed in service after 2017.
- IRS Publication 946 also states that "any tangible property which during the taxable year is used predominantly outside the United States" must use ADS, and the recovery period for residential rental property is 30 years (for property placed in service after 2017).
2. Summary Table:
*For property placed in service after December 31, 2017. For property placed in service before January 1, 2018, the ADS recovery period is 40 years.
Conclusion: Foreign residential rental property must be depreciated over 30 years using the straight-line method and the mid-month convention under the Alternative Depreciation System (ADS).
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