Depreciation questions

[Cat in OH]

I have a client, a veterinarian, who owns property with both an office building and a separate kennel building on it. Thru last year he operated the kennel so income, expenses and depreciation all went thru his sched C. He closed the kennel operation at the end of the year. This month he began renting the kennel building to an unrelated party who has reopened it. Because this is now a rental, I will move the income to sched E to lower his SE tax. My question is, how do I handle the depreciation on the kennel building? Can he just continue with the same depreciation schedule (basis, previous depr, time period, just on sch E) or does he have to start over using current undepreciated value as his basis and a new 39 yr time?

Thanks,

Cat

[Marge]

I would use the old method and just move the asset to the Sch E.

Marge

[Terry D EA]

Cat,

This situation can be quite confusing. When the Vet closed the business, the assets would be converted back to personal use to show disposition and his basis would be FMV which would probably be a taxable event as he can be taxed on the difference between his original cost basis minus any depreciation subtracted from FMV. That difference would be a taxable gain on form 4797 and included in his income. Now that he has converted the property to rental, yoju are right to include the income and expenses on Sch E. Remeber, rental income is not subject to SE tax. However, you should begin new depreciation of the assets using the FMV at the basis which may offset the taxable gain from the conversion. I did one of these on a S-Corp repo which was a PITA to figure out. If someone here has a better approach, then I would be interested as well.

BTW, how is good ole Youngstown? My home town is Warren and I must admit I am in no way sorry that I ever moved from that area. It has become economically depressed and I am sorry but it is not as beautiful as good ole NC. I hope I have helped you a little.

Terry D.

[kcjenkins]

I have a client, a veterinarian, who owns property with both an office building and a separate kennel building on it. Thru last year he operated the kennel so income, expenses and depreciation all went thru his sched C. He closed the kennel operation at the end of the year. This month he began renting the kennel building to an unrelated party who has reopened it. Because this is now a rental, I will move the income to sched E to lower his SE tax. My question is, how do I handle the depreciation on the kennel building? Can he just continue with the same depreciation schedule (basis, previous depr, time period, just on sch E) or does he have to start over using current undepreciated value as his basis and a new 39 yr time?

Since there were only a few months in which the kennel stood idle, I would not see any problem with simply moving it to the Sch E and continuing to depreciate it on the same schedule. The software make that super easy, just add an E then go to the asset entry and select that building and click on 'move asset'. Then assign it to the E, and you are good to go.

KC

[Cat in OH]

Since there were only a few months in which the kennel stood idle, I would not see any problem with simply moving it to the Sch E and continuing to depreciate it on the same schedule. The software make that super easy, just add an E then go to the asset entry and select that building and click on 'move asset'. Then assign it to the E, and you are good to go.

KC

That's what I was hoping I could do. Thanks!