How to Calculate and Write Off Depreciation for Partially Occupied Rental Property

You're on the right track, but there are some important details to consider. When you're living in part of a property that you're also renting out, you can only depreciate the portion used for rental purposes. During your renovation period while you're occupying one bedroom, you'll need to calculate what percentage of the property is being used for personal vs. rental purposes. Also, remember that land isn't depreciable - only the building is. So you'll need to determine what portion of your $1.35 million purchase price is allocated to the building structure versus the land. Your property tax assessment might help with this breakdown. Once renovations are complete and you move out, then you can claim depreciation on the entire building structure (not the land) using the 27.5 year timeline for residential rental property.

After struggling with similar rental property depreciation questions last year, I found this amazing tool called taxr.ai (https://taxr.ai) that saved me so much frustration. You upload your property documents and it helps calculate exactly what portion you can depreciate, including handling split use like yours. It even figures out the building vs. land value split based on your location! The tool gave me specific guidance on my partially-occupied rental during renovations that perfectly matched what my CPA later told me, but saved me from paying for a consultation.

Just wanted to follow up about my experience with taxr.ai. I decided to try it despite my initial skepticism about online tools, and I'm honestly impressed. The system correctly identified which of my renovation expenses were immediate deductions vs. capital improvements that needed depreciation. It even flagged a potential passive activity loss limitation issue I wasn't aware of and explained my options. What really surprised me was how it handled my mixed-use property period - it created a custom depreciation schedule showing exactly how the numbers change once I convert to 100% rental use. Definitely saved me from making some costly errors on my tax planning!

If you're having trouble getting answers about rental property depreciation from the IRS, I highly recommend using Claimyr (https://claimyr.com). I spent WEEKS trying to get through to an IRS agent about a similar rental depreciation question and kept hitting dead ends. Claimyr got me connected to an actual IRS representative in under 45 minutes! You can see how it works here: https://youtu.be/_kiP6q8DX5c The IRS agent was able to confirm exactly how I should handle my mixed-use property depreciation and gave me the specific form references I needed. Apparently there are special rules when you convert a property from personal to rental use that affect your depreciation basis.

I need to eat some humble pie here. After calling out Claimyr as sounding like BS, I was desperate enough with my rental property tax situation that I actually tried it. Within an hour, I was talking to an actual IRS representative who clarified my depreciation questions! The agent confirmed I needed to use Form 8582 for my passive activity limitations and explained exactly how to handle the transition from partial personal use to full rental status. She even emailed me the relevant IRS publication sections. I'm shocked this actually worked - saved me countless hours of hold music and frustration.

Don't forget about cost segregation for your rental! Instead of depreciating everything over 27.5 years, you can break out components like appliances (5 years), carpeting (5 years), etc. This front-loads your depreciation deductions. We did this on our rental and it dramatically increased our first-year deductions.

Just be careful about recapture tax when you eventually sell the property. All that depreciation you're taking now will be recaptured at a 25% tax rate when you sell, regardless of your income tax bracket. I learned this the hard way!

Make sure you're tracking all renovation expenses correctly. Repairs maintain the property and are deducted immediately (like fixing a leaky faucet), while improvements that add value are depreciated over time (like a new roof or kitchen remodel). This distinction makes a huge difference on your taxes!

Great question about depreciation! One important thing to add - since you purchased the property in November 2024, you'll need to use the mid-month convention for your first year of depreciation. This means you can only claim 1.5 months of depreciation for 2024 (November counts as a half month, plus December). So instead of a full year's worth, you'd calculate your annual depreciation amount and multiply by 1.5/12. Also, keep detailed records of when you move out completely and convert to 100% rental use. The IRS considers this a "change in use" and you'll need to document the exact date for your depreciation calculations going forward. Take photos showing the property is ready for rental and keep records of when you start advertising or get your first tenant - this helps establish the conversion date if you're ever audited. One more tip: consider getting a professional appraisal that breaks down land vs building value. It's worth the cost for a $1.35M property to ensure you're maximizing your depreciable basis correctly.

Don't forget about the Section 199A deduction (QBI deduction) for rental real estate! Since you'll be operating a rental property business, you may qualify for up to a 20% deduction on your rental income. However, there are income limitations and the property needs to qualify as a "trade or business" rather than just passive investment activity. To qualify, you'll generally need to spend at least 250 hours per year on rental activities (advertising, maintenance, tenant screening, etc.) and keep detailed records of your time. Given that you're doing renovations and actively managing the property conversion, you're likely already meeting the activity requirements. Also, since you mentioned this is a high-value property in a presumably good area, consider whether you'll hit the income phase-out limits for the QBI deduction. The deduction starts phasing out at $191,950 for single filers in 2024. If your total income is above this threshold, the deduction calculation becomes more complex but could still provide significant tax savings. This deduction can be substantial - on $50k of rental income, it could save you up to $10k annually in taxes if you qualify fully. Definitely worth discussing with a tax professional alongside your depreciation strategy!