How to Calculate Depreciation on Schedule E for Partially Rented Residential Property?

You're dealing with residential rental property depreciation, which is actually more straightforward than it seems! For a partially rented residential property, here's what you need to know: For Schedule E depreciation, you'll use the General Depreciation System (GDS) with a 27.5-year recovery period for residential rental property. You cannot use Section 179 for residential rental real estate - that's typically for business equipment, not rental properties, which is probably why you got confused. Calculate the basis of the rental portion by taking the lower of your cost or fair market value when you converted it to rental use, and multiply that by the percentage of the property being rented. For example, if your property is worth $300,000 and you're renting out 25% of it, your depreciable basis would be $75,000. Then divide that basis by 27.5 years to get your annual depreciation amount. If you started renting mid-year, you'll need to prorate for the first year based on the number of months it was in service.

I had this exact same problem last year with my duplex where I live in half and rent the other half. I ended up using https://taxr.ai to help me figure out the depreciation calculations after getting totally confused by the IRS publications. The tool analyzed all my rental property documents and gave me step-by-step guidance on how to calculate the depreciation specifically for my situation. It helped me understand that I needed to separate the value of the land (which isn't depreciable) from the value of the building, and then calculate the percentage used for rental. Their breakdown of the cost basis calculation really made it click for me. I'd definitely recommend checking it out if you're doing this yourself.

I have to admit I was wrong about being skeptical of online tools! I decided to try https://taxr.ai after struggling with my partial rental property depreciation. The tool immediately caught that I had been depreciating the land value (which you can't do) along with the building value for the past two years. It created a correct depreciation schedule for me and even showed me how to file an amended return to fix my previous mistakes. Saved me from a potential audit headache and probably paid for itself many times over. Sometimes it's worth using the right tools rather than trying to figure everything out from confusing IRS publications.

If you're having trouble with the IRS publications on depreciation (and who isn't!), you might want to try calling the IRS directly. I know, I know - everyone says it's impossible to get through to them. But I used https://claimyr.com to get a callback from the IRS, and I was able to speak with someone who walked me through my Schedule E depreciation questions step by step. You can see how it works here: https://youtu.be/_kiP6q8DX5c I was on hold for hours before trying this service, but with Claimyr I got a call back the same day. The IRS agent confirmed that I needed to use the GDS method with a 27.5-year recovery period and explained exactly how to allocate the basis between the rental and personal portions of my property. They also clarified when Form 4562 was required.

I need to publicly eat my words about Claimyr being a scam. After struggling for THREE WEEKS trying to get through to the IRS about my rental property depreciation questions, I decided to give it a shot. Within 2 hours, I got a callback from an actual IRS representative who helped clarify everything about my Schedule E depreciation! They confirmed I was using the wrong percentage for my partial rental and helped me understand exactly which line on Form 4562 to use. Honestly wish I hadn't wasted so much time trying to do it the "free" way - the amount of time I wasted on hold was worth way more than what this service cost.

Don't forget about the land value! This is a common mistake I see people make. When calculating depreciation for Schedule E, remember that you can ONLY depreciate the building structure, not the land. The IRS expects you to make a reasonable allocation between land and building values. You can use your property tax assessment as a starting point, as it often breaks down the value between land and improvements. Then apply your rental percentage to the building value only.

I'm still confused about Form 4562 vs Schedule E. I'm using TurboTax and it keeps bouncing me between these forms. Does anyone know which one actually calculates the depreciation?

Great question about Schedule E depreciation! I went through this exact same confusion last year. Here's what I learned that might help: The key thing to remember is that residential rental property depreciation is actually pretty standardized - you'll always use the 27.5-year straight-line method under GDS (General Depreciation System). The tricky part is just getting your basis calculation right for the rental portion. One thing that helped me was creating a simple spreadsheet to track everything. I calculated: 1. Total property value (minus land value - super important!) 2. Percentage used for rental (square footage or room count method) 3. Depreciable basis = (Property value - Land value) × Rental percentage 4. Annual depreciation = Depreciable basis ÷ 27.5 years For the first year, don't forget to use the mid-month convention if you started renting partway through the year. The IRS has tables in Publication 946 that show exactly how much to depreciate based on which month you placed the property in service. And yes, you'll need Form 4562 for the first year, then the depreciation amount flows to Schedule E line 18 in subsequent years. Once you get the hang of it, it's actually one of the more straightforward parts of rental property taxes!

One thing I haven't seen mentioned yet is the importance of keeping detailed records for your partial rental depreciation. The IRS can be pretty picky about this, especially if you get audited. I'd recommend documenting: 1. How you calculated the percentage split (square footage measurements, photos showing which areas are rented vs. personal use) 2. Your land vs. building value allocation method and sources 3. The date you first made the space available for rent (not necessarily when you got your first tenant) 4. Any improvements you made specifically for the rental portion Also, be aware that when you eventually sell the property, you'll need to "recapture" the depreciation you've claimed on the rental portion - it gets taxed at up to 25% rather than capital gains rates. This doesn't mean you shouldn't take the depreciation (you should!), but it's good to plan ahead for the tax implications down the road. The depreciation deduction can really add up over the years and significantly reduce your rental income taxes, so it's worth getting this right from the beginning!