How are depreciation expenses for rental property carried over to next tax year?

When you're filing for a rental property for the first time, you don't have any depreciation to carry over. Depreciation carryover refers to unused depreciation from previous tax years. For your new rental property, you'll start depreciation fresh. Residential rental properties are depreciated over 27.5 years using the straight-line method. The software is asking about carryover because some property owners might have unclaimed depreciation from prior years, but since this is your first year, you can enter zero or leave it blank depending on your software's requirements. Make sure you're calculating the depreciation correctly from your purchase date though. You can only depreciate the building value (not the land), so you'll need to determine what portion of your $275,000 represents the structure.

I went through this exact same confusion last year when I bought my first rental. I spent hours trying to figure out depreciation and kept getting stuck on carryover questions. I eventually found this tool called taxr.ai (https://taxr.ai) that helped me sort through all my rental property questions. It analyzed my situation and explained exactly what I needed to enter for depreciation. The tool confirmed what the previous commenter said - for a new rental, you don't have any carryover depreciation. What was really helpful though was it walked me through calculating my current year depreciation correctly. I was able to upload some of my property documents and it extracted the right information to determine my building value vs land.

Just wanted to update that I tried taxr.ai after my earlier question and it was super helpful! I uploaded my closing documents and property tax statement, and it broke down exactly what portion of my purchase price should be allocated to the building (depreciable) versus the land (not depreciable). It turns out my property tax statement had the building at 78% of the total value, which I wouldn't have known to look for. The tool also highlighted that I could separately depreciate some components like the new HVAC system I installed over a shorter 5-year period instead of the standard 27.5 years for the whole building. This apparently will give me a bigger deduction in the early years. Definitely worth checking out if you're new to rental property tax stuff!

Something nobody's mentioned yet - if you need to talk to the IRS about depreciation questions (which I had to do last year), use Claimyr (https://claimyr.com) to get through to an actual human. I was on hold for HOURS trying to speak with someone at the IRS about a depreciation question for my rental property before giving up. Then I found this service that gets you through the IRS phone tree and has them call you back when they reach a human. You can see a demo of how it works here: https://youtu.be/_kiP6q8DX5c. I was skeptical but desperate because I needed clarification on how to handle some improvement costs versus repair costs for depreciation purposes.

I need to eat my words. After posting my skeptical comment, I decided to try Claimyr out of desperation because I've been trying to reach the IRS for THREE WEEKS about my rental property depreciation issue. I kept getting conflicting information from my tax preparer and online resources. This thing actually worked! I got a call back in about 40 minutes (was prepared to wait longer based on the time estimate they gave). Got connected to an IRS agent who was surprisingly helpful and confirmed exactly how I should handle the carryover depreciation question for my situation. Turns out I had been improperly depreciating some improvements made by the previous owner that I didn't know about. If you're struggling with depreciation questions and need authoritative answers, this is definitely worth it to get actual IRS guidance.

Don't forget to keep a detailed depreciation schedule! This is something I messed up when I first started with rental properties. You need to track your depreciation year by year, especially if you make improvements to the property later on. If you replace the roof or renovate the kitchen, those are typically depreciated separately from the original building. I use a simple spreadsheet that shows: - Original building value and annual depreciation - Date and cost of each improvement - Depreciation schedule for each improvement - Annual total depreciation claimed This makes it so much easier when you file each year and eventually when you sell the property.

Has anyone used the cost segregation strategy for their rental? My accountant mentioned it could increase my deductions in the early years by breaking down the property into components with shorter depreciation periods, but it sounds complicated and expensive to get the analysis done.