Live-in duplex depreciation schedule

[Brad Wood]

Grateful for some guidance BP community--

My first property is a row house with an English basement rental unit, that has its own certificate of occupancy and is registered with the State and has a tax ID. Given that I live in the primary unit, in short what I am trying to figure out is what I'm allowed to depreciate and how to separate this out for tax purposes. 

It's a HCOL area therefore the house cost $1M. I don't know how you are to calculate this for taxation purposes, but our appraisal lists the land value as $330k and I would say the breakdown between the units is 70% main unit (which we occupy) and 30% rental unit. 

I am listening to the BP book on tax strategies for the savvy real estate investor and would i'd like to understand is if I can separate out the kitchen, hvac, etc. to accelerate depreciation beyond the 27.5 years (or even if I can qualify for the 27.5 years given that it's also my primary residence. 

Hope this makes some semblance of sense. 

Thx,

Brad.

[Dave Foster]

@Brad Wood, You're thinking ahead.  Well done.  You should be able to depreciate the portion used for investment  And  you need to get your accountant involved so that you can immediately start taking your depreciation deduction on the portion used for investment.  Because when you sell you will have to recapture the depreciation that you took OR that you could have taken during the time you owned the property.  Since that lower unit has allowable depreciation you'll want to take it.

Generally it's on a sq ft ratio but it doesn't have to be if some other allocation works.

Here's the good news - Don't forget that when it is time to sell that property you are also selling two assets as @Frank Chin says.  You're selling your primary residence and if you've lived in it for at least two years when you sell you'll get to take either the first $250K of gain or the first $500K of gain tax free depending if you're married or single.

And you can do a 1031 exchange on the portion you've rented out.  So when you sell you should be able to avoid a tax bill altogether.