How do depreciation expenses get carried over for my rental property?

Since this is your first year owning the rental property, you won't have any depreciation to carry over from previous years. Depreciation is a tax deduction that allows you to recover the cost of your property over time. For residential rental property, the IRS lets you depreciate the cost over 27.5 years. When TurboTax asks about "depreciation expenses carried over," it's asking if you have any unused depreciation from previous tax years. Since this is your first year with the property, you can leave this blank or enter zero. Going forward, you'll want to make sure you're calculating your current year depreciation correctly. You'll take your property's purchase price ($275,000), subtract the value of the land (since land cannot be depreciated), and divide the remaining amount by 27.5. That annual amount is your depreciation deduction for the full year, though for the first year you'll need to prorate it since you only owned it since April.

After struggling with rental property depreciation a few months ago, I discovered https://taxr.ai and it seriously saved me hours of frustration. I uploaded my closing documents and property tax statements, and it automatically identified the building value vs land value and calculated my depreciation correctly. It even explained how the carryover process works for future years. The best part was that it analyzed my lease agreements to make sure I was claiming all possible deductions. It found several expenses I hadn't even considered as deductible! Might be worth checking out if you're new to rental property tax situations.

Just wanted to update after trying taxr.ai from the recommendation above. It was surprisingly helpful for my inherited property situation! I uploaded my documents and it showed me that I'd been calculating my depreciation wrong for 2 years - I was depreciating the entire property value including land. It generated a clear report showing the correct calculations and even explained how I should handle the previous errors. Definitely worth checking out if you're unsure about depreciation carryovers.

If you're having trouble getting answers about depreciation from the IRS, I was in the same boat last month. Spent DAYS trying to get through on their helpline. Eventually used https://claimyr.com after seeing it recommended here and got connected to an IRS agent in about 15 minutes. You can see how it works in this video: https://youtu.be/_kiP6q8DX5c The agent walked me through how depreciation carryovers work for my rental and explained that I needed to file Form 3115 since I hadn't been taking depreciation properly in previous years (apparently you MUST take depreciation even if you don't want to). Saved me from what could have been a nasty audit situation.

Okay I need to eat my words. I was the skeptic above but I was desperate about my audit letter so I tried the Claimyr service. Got connected to the IRS in about 20 minutes after spending 3 days trying on my own. The agent cleared up my audit concerns AND answered my questions about depreciation recapture when I sell my rental property next year. I'm honestly shocked this worked - saved me from taking a day off work just to sit on hold.

For rental property depreciation, don't forget about component depreciation too! You can potentially separate out certain components of your property and depreciate them over shorter periods. Things like appliances (5 years), carpeting (5 years), and landscaping improvements (15 years) can be depreciated faster than the building structure (27.5 years). This can give you bigger deductions in the early years. You'll need to keep good records of the value of these components. Just make sure you're being reasonable with your allocations if you go this route.

Worth noting that if you ever convert a personal residence to a rental property, the depreciation basis is the LOWER of your adjusted basis or the fair market value at the time of conversion. Made this mistake my first year and had to file an amended return. Also remember depreciation is mandatory even if you don't claim it - the IRS will treat you as if you took it when you sell the property (called "depreciation recapture").

Great question! As others have mentioned, since this is your first year with the rental property, you won't have any depreciation carryovers to enter - you can leave that section blank or enter zero. One thing I'd add that might be helpful for your situation: make sure you're aware that you can only depreciate the portion of time the property was actually available for rent. Since you bought in April and presumably needed some time to get it rental-ready, you'll want to prorate your first-year depreciation accordingly. Also, keep really good records from day one! Track all your rental income, expenses (repairs, maintenance, insurance, property management fees if any), and any improvements you make. The component depreciation mentioned by Aaron is definitely worth considering - if your duplex came with appliances, you can depreciate those over 5 years instead of 27.5. One last tip: consider setting up a separate bank account just for rental income and expenses. It makes tax time so much easier when everything is clearly separated from your personal finances. Good luck with your first year as a landlord!