When a property is ready and available to rent in 2024, is it permissible for the taxpayer to begin claiming depreciation for 2024?
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Yes, a taxpayer can begin claiming depreciation on a property in 2024 as soon as it is ready and available for rent, even if it is not actually rented yet.
1. Legal Reasoning and Details
- Placed in Service Requirement: For depreciation purposes, property is considered "placed in service" when it is ready and available for a specific use in a trade or business or for the production of income, even if it is not actually being used at that moment. This is a well-established principle in tax law and is consistently stated in IRS guidance.
- IRS Publication 527 (2024): The publication 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." It further clarifies with examples that a property is considered placed in service when it is ready and available for its specific use, even if it is not actually rented yet. For example, if you make repairs and then advertise the property for rent, it is considered placed in service when it is available for rent, not when a tenant actually moves in.
- IRS Publication 225 (2024): This publication, which covers farm and rental property, similarly states: "You begin to depreciate your rental property when you place it in service for the production of income. You stop depreciating it 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 in a rental activity when it is ready and available for a specific use in that activity. Even if you aren’t using the property, it is in service when it is ready and available for its specific use".
- IRS Publication 946 (referenced in Pub. 527 and Pub. 225): This publication, which is the IRS’s comprehensive guide to depreciation, also confirms that property is placed in service when it is ready and available for a specific use, even if it is not yet actually being used.
- Practical Example: If you purchase a rental property, make necessary repairs, and list it for rent in July 2024, but do not find a tenant until September 2024, the property is considered placed in service in July 2024 (when it was ready and available for rent). You may begin depreciating the property as of that date, not the date the first tenant moves in.
2. Conclusion
A taxpayer may begin claiming depreciation for 2024 as soon as the property is ready and available to rent, regardless of whether it is actually rented during that year.
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