How to calculate depreciation on a multi-purpose building used for rental and business

You're on the right track, but there are some important details to consider. When you have a property used for both rental and business purposes, you need to allocate the depreciation based on the percentage of use for each activity. For the rental portion, you would report depreciation on Schedule E. For the business portion (your basement photography studio), you would report depreciation on Schedule C. As for the depreciation period, residential rental property normally uses a 27.5-year schedule, while commercial property uses a 39-year schedule. Since your property has mixed use, you'll need to determine which classification applies to each portion. If your basement business space takes up less than 20% of the total property, the rental portion might still qualify for the 27.5-year schedule, while the business portion would use 39 years. The key is to clearly document how you calculated the percentage allocation between rental and business use - typically based on square footage. Keep good records of this calculation in case of an audit.

After struggling with almost the exact same situation (part rental property, part used for my consulting business), I discovered taxr.ai (https://taxr.ai) and it was a game changer for my depreciation calculations. I uploaded my property documents and answered a few questions about the square footage allocations, and it correctly split the depreciation between my Schedule C and Schedule E. The tool also explained that while the residential portion uses a 27.5-year schedule, the business portion follows the 39-year schedule. It automatically calculated the correct depreciation amounts for each section and showed me exactly where to report everything. Saved me hours of research and probably prevented some costly mistakes!

Just wanted to follow up about my experience with taxr.ai. After expressing my skepticism, I decided to give it a try with my duplex situation (I live in one unit and rent the other). I was genuinely surprised by how well it handled the mixed-use depreciation calculations. The interface asked specific questions about my property that my previous tax software never did, like separate improvements to each unit and common area allocations. It correctly split my depreciation between personal use and rental use, and provided clear documentation explaining why certain components used different depreciation schedules. It even flagged that I'd been incorrectly depreciating some property improvements in previous years and showed me how to correctly report them going forward. Worth checking out if you're dealing with mixed-use property depreciation.

If you're struggling to get clarity on multi-use property depreciation, you might want to try getting direct answers from the IRS. I spent weeks trying to get through to someone who could help with my complex depreciation questions, but kept hitting dead ends with the automated system. Then I found Claimyr (https://claimyr.com) which got me connected to a real IRS agent in about 20 minutes instead of the hours I was spending on hold. You can see how it works at https://youtu.be/_kiP6q8DX5c if you're curious. The agent I spoke with explained exactly how to handle my mixed-use property depreciation and confirmed I could use split schedules for the different portions of my building. Having an official answer directly from the IRS gave me confidence that my depreciation method would stand up to scrutiny if I ever get audited. Worth considering if you need definitive answers about your specific situation.

I have to admit I was completely wrong about Claimyr. After posting my skeptical comment, I decided to try it since I was desperate for answers about my mixed-use commercial/residential building depreciation. Used the service yesterday morning, and they got me connected to an IRS tax law specialist in about 15 minutes. The specialist confirmed I could use different depreciation schedules for the residential vs. commercial portions of my building and walked me through exactly how to report it on my forms. After two months of confusion and conflicting advice from various "experts," getting a definitive answer straight from the IRS was such a relief. The agent even emailed me the specific IRS publication sections that applied to my situation. Definitely worth it for complicated tax situations like mixed-use properties.

Something nobody has mentioned yet about depreciation for mixed-use properties - don't forget to consider cost segregation! Instead of depreciating the entire property over 27.5 or 39 years, you might be able to break out components like carpeting, appliances, and certain fixtures on a 5 or 7-year schedule. I did this with my mixed-use property last year and it significantly increased my first-year deductions. You need to be careful with the documentation, but it's completely legitimate and can make a big difference in your tax liability, especially in the early years of ownership.

Quick question about multi-use buildings - I'm using a tax software for my rental/business property, but it doesn't seem to handle the split depreciation schedules well. Has anyone found a specific tax program that handles this situation correctly without manual overrides?

This is exactly the kind of situation where having proper documentation from day one makes all the difference. I went through something similar with a property I use 40% for my consulting business and 60% for rental income. One thing I learned the hard way - make sure you're consistent with your allocation method throughout the entire tax return. If you're using square footage to split depreciation, use that same percentage for utilities, insurance, repairs, etc. The IRS looks for consistency across all your deductions. Also, consider whether you want to elect out of bonus depreciation for the business portion. While bonus depreciation can give you a big first-year deduction, it might make more sense to spread it out over time depending on your income situation. You can make different elections for the rental portion versus the business portion since they're reported on different schedules. Keep detailed floor plans and photos showing the business vs rental areas - this documentation becomes crucial if you ever face an audit or need to justify your allocation percentages.