Can depreciation expenses from rental property be carried over to next tax year?

Thanks for the explanation, but I'm still confused about one thing. Does this mean I can deduct the full $8,500 for the kitchen this year, or do I have to spread that out too? And should I be keeping track of this depreciation somewhere for next year's taxes?

You can't deduct the full $8,500 this year - kitchen improvements are considered capital improvements that need to be depreciated over time (typically 5 years for appliances and 15 years for permanent fixtures like cabinets). You absolutely need to keep track of this for future tax years. The software should actually be calculating this for you and carrying the information forward if you use the same program next year. I'd recommend creating a spreadsheet that lists each improvement, when it was placed in service, the total cost, and how many years it's being depreciated over. This will be extremely helpful for future tax filings and if you're ever audited.

Does this actually work for complicated situations? I inherited a rental property that already had partial depreciation and I'm completely lost with all the carryover values. Would this help with figuring out the adjusted basis?

I'm a bit skeptical of random tax tools online. Is this something that's actually accurate for IRS purposes? I got burned once using some free calculator that gave me totally wrong numbers.

It absolutely handles complicated situations - that's actually its strength. It can process existing depreciation schedules and help determine the right adjusted basis even for inherited properties. The tool asks specific questions about prior depreciation and ownership history to get the calculations right. I was skeptical too before using it. What convinced me was that it's built on actual tax code rules and updates when tax laws change. I cross-checked some of its calculations with my accountant and they matched perfectly. It also gives you documentation explaining how it reached the numbers, which is helpful if you ever get questioned by the IRS.

How does this actually work? I'm confused about how they can hold your place in line. Don't you need to verify your identity with the IRS directly?

This sounds like complete BS honestly. The IRS phone system is deliberately designed to be impossible to navigate. I don't see how any service could magically get you through when millions of people can't get answers.

They don't actually speak to the IRS for you - they just navigate the phone tree and wait on hold. When an agent comes on the line, you get a call so you can talk directly to the IRS yourself. You handle all the identity verification yourself when you're connected. I was extremely skeptical too. I've spent countless hours trying to get through to the IRS over the years with no success. The difference is they have some kind of system that keeps the connection active and manages the hold time for you so you don't have to sit there listening to the hold music for hours. I was surprised it actually worked, but I finally got my depreciation questions answered by a real IRS agent.

Wait, this is terrifying. So even if I don't understand all this depreciation stuff and decide to skip it this year for simplicity, the IRS will still act like I took the deduction when I eventually sell? That sounds really unfair. Is there any way around this?

Unfortunately, there's no way around it. The tax code specifically states that depreciation recapture applies to depreciation "allowed or allowable" - meaning even if you didn't claim it, the IRS treats it as if you did when calculating your gain upon sale. Your best option is to learn how to properly claim depreciation now. Even if you've missed it in past years, you can file Form 3115 to correct your accounting method and claim missed depreciation from prior years. This is much better than losing the deductions entirely. If you're overwhelmed, this is one area where working with a tax professional who specializes in real estate can really save you money in the long run.

There isn't really a "simplified" method for depreciation itself - the 27.5 year schedule for residential buildings is pretty much standard. What your accountant might be referring to is the safe harbor for small taxpayers that lets you immediately expense (not depreciate) certain improvements under $2,500 per invoice (or $5,000 if you have applicable financial statements). But this doesn't apply to the initial property purchase or major renovations.

This is really helpful! I'm also a first-time landlord and was getting overwhelmed by all the depreciation terminology. One question - when you mention separating land value from building value, how do you handle that if your property tax assessment doesn't break it down clearly? My county just shows one total assessed value. Should I be getting a professional appraisal just for tax purposes, or is there a simpler way to estimate this split?

Great question! You don't need to get a professional appraisal just for this. The IRS actually accepts several reasonable methods for determining the land/building split. The most common approach is to use your county assessor's records - even if they show one total, you can often call the assessor's office and they'll provide the breakdown they use internally. Another accepted method is to look at comparable vacant land sales in your area and estimate what your lot would be worth empty. You can also use the replacement cost method - estimate what it would cost to rebuild the structure today, then subtract that from your total property value to get the land value. The key is being reasonable and consistent. The IRS isn't looking for perfection here, just a good faith effort to separate the depreciable building from the non-depreciable land. I'd suggest starting with a call to your county assessor - they're usually helpful and it's free. Document whatever method you use in case you're ever asked about it later.