Did not consistently declare depreciation in brief periods when my principal residence was a rental

Question

I have a question. I am a teacher and I often spend a summer or a semester teaching outside the country and away from home. During the time I am away I usually rent out my  house as a furnished apartment. I think when I first did this in 2009-2010, I converted from personal use to rental in summer 2009 and then from rental to personal use at the end of 2010. During those 2 years, I declared the depreciation (as a loss). But it was a few years before I rented my home out again and I believe that I never again deducted depreciation (even though I have rented several times over the years, each time converting from personal to rental use and then back again at the end of the semester away; I declared all the rental income, I just didn't declare depreciation). What if anything does this mean about how I should approach declaring depreciation going forward? Is what I have done a mistake? Should I try to correct it? Thanks for your thoughts.

Fumaxiu · Answer

Dear TriciaD,

Thanks so much for your thorough answer. It is very helpful! It sounds as though I need to make a list of the periods of time I rented my place out since 2010 (it varies a lot - usually summers, but some years not at all, and once or twice for longer) and then figure out how to catch up the depreciation with form 3115. I'll see if I can figure that out but I appreciate your suggestion that it might be best to hire a professional.

TriciaD · Answer

Hello Fumaxiu,

This is a common situation, and I appreciate you providing the background.

When you rent out your home, the IRS requires you to claim depreciation—it's considered "allowed or allowable" depreciation. This means that even if you don't claim it during the rental periods, the IRS will still treat it as if you did when you eventually sell the home. You'll potentially owe depreciation recapture taxes on the amount you should have claimed, whether you actually took the deduction or not.

Since you didn't claim depreciation for the rental periods after 2010, you've essentially missed out on tax deductions you were entitled to, but you may still face depreciation recapture when you sell the property. You didn't get the benefit of the deductions, but you could still owe taxes on them later. Typically, you must file Form 3115 to "catch up" the depreciation you should have taken in prior years.

You should claim depreciation for any current and future rental periods. Each time you convert your home to rental use, you can depreciate the portion of time it's rented. When you convert it back to personal use, you stop depreciating.

Here is a FreeTaxUSA Community article regarding how to report depreciation on a property that is repeatedly converted between rental and personal use:

https://community.freetaxusa.com/kb/articles/275-how-do-i-report-depreciation-for-a-rental-that-was-repeatedly-converted-between-rental-and-personal-use?utm_source=community-search&utm_medium=organic-search&utm_term=rental+to+personal+use

Due to the complexity of your situation, you may want to consider consulting a tax professional to determine the best approach for resolving the depreciation issue.