How does depreciation work?

I have a quick question I hope somebody can help me with. I just bought a rental house, and it probably want be rented out till next year. I have spent alot of money getting a refridgerator, stove, washer and dryer, and etc. for the rental house. Since I will depreciate the house this year, and deduct all the appliances, and etc. will I get money back at tax time from the depreciation, and the deductions? How does this work? Thanks


Ben

Benryanv,

Welcome to world of Land Lords.

Is the home available for rent?
Are you actively trying to rent the home?

First, land is not depreciable. Look at your assessment, and you should see that there is an assessment for the land and an assessment for the buildings. For an example, if 20% of the total assessment is for the land, and 80% is for the buildings, use the 80% to determine how much you paid (your basis) for the depreciable buildings.

You purchased some appliances. The appliances are depreciated over a shorter time period than the buildings.

There are also special depreciations (section 179 is one of these) that allow a portion or all of a depreciable item to be taken in the first year.

Depreciation is added to your other expenses (Schedule E) and then subtracted from your rents received to arrive at your profit or loss.

You need to get copies of IRS Pubs;
- 527 Residential Rental Property
- 551 Basis of Assets
- 946 How to Depreciate Property

And these Forms:
- 4562 Depreciation and Amortization
- Schedule E(form 1040) Supplemental Income and Loss

Get copies of the pubs, and the forms. Examples are given in the pubs that can be very helpful.

You could go pay a professional to prepare your tax forms the first year. Typically they charge by the form, and you will have several new forms. And most likely the tax preparer will not give you a copy of your depreciation schedules for future years. Learning to DIY may be a good idea.