5 Tips on Real Estate Depreciation from a CPA

I received an interesting email regarding Real Estate depreciation from Karen Yu, who is an active CPA and works with a multitude of real estate investors.

When you buy real property (or personal property that lasts more than one year) to use in your business, you may have up to three options for deducting the cost:

  • Regular depreciation
  • Bonus depreciation
  • IRC Section 179 expensing (technically, depreciation in advance)

Regular depreciation takes several years.

Bonus depreciation allows you, through 2022, to deduct 100% of the cost of personal property in one year.

IRC Section 179 expensing allows you to deduct up to $1,050,000 of the cost of personal property.

Here are five tips to note:

  1. To claim depreciation, you must place the property in service in an active trade or business.
  2. A business begins when it is functioning as a going concern—sales and revenue are not required.
  3. Depreciation for business property purchased for an active business begins only when the property is placed in service in the business—in other words, it is available for use in the business.
  4. First-year regular depreciation for personal property begins either on July 1 (half-year convention) or at the midpoint of the quarter in which it is placed in service (mid-quarter convention).
  5. First-year depreciation for real property depreciation begins at the middle of the month during which the property is placed in service (mid-month convention).

It should be noted that I, myself, am not a CPA nor am I offering tax advice with this post.