How to convert personal to investment property?

[Jason Lagan]

Hi everyone! I'm hoping to purchase a property as personal with 5% downpayment & wondering how to, if possible, to convert the property to an investment property & be able to claim depreciation?

[Scott Trench]

This is a great question for one of the tax professionals, CPAs, etc. on the platform. 

However, I can say that at a high level, if you were to house-hack the property and rent a portion of it out, then the rented portion would be treated as a rental, and you can/have to depreciate the portion of the property that is used as a rental property. 

Be careful what you wish for, however. A primary residence can be sold a few years down the line, and much/all of the appreciation can be harvested without capital gains tax. This is a powerful benefit for owner-occupants. 

The bottom line is to do things the right way and not to game the system. Just know that if you do game the system and get more depreciation now, you may not be able to claim the loss on your return (if you earn over $150,000 in AGI, for example) and know that you will have to recapture that depreciation and pay capital gains when you exit the investment. There are big advantages to having much of the property be your primary residence, if it appreciates, or you force appreciation!