Primary Conversion, Depreciation Questions

[Ayo Odusanya]

Good morning, 

I'm just about to convert a property from a primary to a rental and i had a few questions regarding deprecation.

I purchased the home in 2019 for 295K, and it is now worth $450K. I plan to do a quit claim deed to transfer the property from me to my LLC and then convert it to a rental property starting next year. Current remaining mortgage is $240K at 2.5%

Few questions regarding this:

1. What is the number i use to estimate by base line depreciation: 295, 450, or 240K

2. How does bonus depreciation work? do i add this to base line depreciation, or does that replace baseline?

Thanks for the help!

[David M.]

@Ayo Odusanya

Well, you need to have some of capital expenses for bonus depreciation as I recall.  So, if you haven't made any expenses this year or next, there isn't anything to claim.

Double check with a qualified professional, but I believe it would be $450k.  You use the current value of the asset for starting depreciation.  The mortgage/financing has nothing to do with it.

While not in your question, just consider if its worth taking the sec121 exclusion so that you can get the capital gain tax free. Also, the LLC isn't necessarily useful as one thinks especially when starting out. If you do go that route, be sure to check at a minimum your property insurance, your title insurance, and that you don't comingle your funds when making payments since the mortgage will still be in your name.

good luck.