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Changes in Computing Certain Residential Rental Property Depreciation

May 31, 2022


Owners of residential rental property placed in service prior to January 1, 2018, may be eligible for favorable tax treatment under the Consolidated Appropriations Act, 2021.


The IRS has issued a revenue procedure which provides guidance that retroactively provides a recovery period of 30 years under the alternative depreciation system (ADS) for certain residential rental property that has not previously been subject to the ADS. The revenue procedure explains how a taxpayer changes its method of computing depreciation for certain residential rental property and provides automatic consent procedures for changing the accounting method, and in certain cases simplified procedures, for taxpayers adopting the depreciation method changes.

Background

The Tax Cuts and Jobs Act reduced the modified accelerated cost recovery system (MACRS) alternative depreciation system (ADS) recovery period for residential rental property from 40 years to 30 years, effective for property placed in service after December 31, 2017. The 40-ADS recovery period for residential rental property placed in service before January 1, 2018, remains unchanged.

A taxpayer must obtain consent before changing the depreciation method, convention, or recovery period for any asset for federal income tax purposes, whether the taxpayer's present method of accounting is proper.

Please contact our office to discuss your situation related to a change in the accounting method for depreciation for certain residential rental property.


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