Question Regarding Depreciation

[Michael Moreno]

Hi everyone,

I own a 3-bedroom, 2-bath single-family residence that I purchased in September 2023. I currently rent out two of the guest rooms and am living in the rest of the house. I understand that I need to prorate my expenses based on the square footage that is being rented out.

However, I plan to move out soon and rent the entire house. Since I started renting out the house in May 2024 and will likely move out in 2025 after the leases for my current renters end, I have a question about depreciation.

Can I depreciate the portion of the house that was being used for personal use, even though I was living in the house for part of 2023? Specifically, am I able to depreciate the square footage I couldn't claim depreciation on from 2023 for the 2024 tax year, given that I couldn’t claim depreciation for that period?

Thank you for your guidance!

[Michael Plaks]

@Michael Moreno

Short answer - yes, in 2025. Long answer - it's complicated.

For 2024 you have a personal residence with room hacking. Not only your depreciation is limited, you cannot claim any loss.

For 2025, you will have two separate periods. Same as 2024 for the first part of 2025. Then a traditional rental once you move out, assuming you will rent the whole house.

[Account Closed]

Quote from @Michael Moreno:

Hi everyone,

I own a 3-bedroom, 2-bath single-family residence that I purchased in September 2023. I currently rent out two of the guest rooms and am living in the rest of the house. I understand that I need to prorate my expenses based on the square footage that is being rented out.

However, I plan to move out soon and rent the entire house. Since I started renting out the house in May 2024 and will likely move out in 2025 after the leases for my current renters end, I have a question about depreciation.

Can I depreciate the portion of the house that was being used for personal use, even though I was living in the house for part of 2023? Specifically, am I able to depreciate the square footage I couldn't claim depreciation on from 2023 for the 2024 tax year, given that I couldn’t claim depreciation for that period?

Thank you for your guidance!

 Please clarify, is this a long term or short term rental? 

[Landon Mizuguchi]

Quote from @Michael Plaks:

@Michael Moreno

Short answer - yes, in 2025. Long answer - it's complicated.

For 2024 you have a personal residence with room hacking. Not only your depreciation is limited, you cannot claim any loss.

For 2025, you will have two separate periods. Same as 2024 for the first part of 2025. Then a traditional rental once you move out, assuming you will rent the whole house.

@Michael Plaks if you're living in the house and renting rooms  (e.g. room hacking) you can't claim losses? 

[Michael Plaks]

Quote from @Landon Mizuguchi:

@Michael Plaks if you're living in the house and renting rooms  (e.g. room hacking) you can't claim losses? 

Yes, literally what I said. Or, rather, what the tax code said.

[Jason Malabute]

Hi Michael,

I agree with Michael Plaks. For 2024, since the property is partly your residence, you can only depreciate the portion rented out, and no loss can be claimed. In 2025, once you move out and rent the entire property, you can start depreciating the whole house. Just ensure you keep track of when the property use changes.

[Michael Moreno]

Quote from @Jason Malabute:

Hi Michael,

I agree with Michael Plaks. For 2024, since the property is partly your residence, you can only depreciate the portion rented out, and no loss can be claimed. In 2025, once you move out and rent the entire property, you can start depreciating the whole house. Just ensure you keep track of when the property use changes.

 Thanks Jason! Also, if I bought a fridge, washer, and dryer, how do I expense these appliances? I want to expense them all the same year since they're each under $2,500 and depreciating them wouldn't really do me any good. Since I am renting my home out to two other renters, we each use these appliances equally. Does that mean I can expense these appliances by 66% (2/3) the same year?