Depreciating mixed-use building

[Catherine]

New client brings in old problems. Came to me with an issue of consumer tax product over-counting his mortgage on Sch A & Sch E, but if I fix one item I look over the whole thing -- and of course I found more questions. Have solved most them but here's one I'm still pondering.

He bought a two-family house. Rents one apartment and lives in the other. But also some years rents out additional bedroom in his apartment.

I found the assessment info so I have the building and land values. But what is the right way to depreciate this property?

A. Depreciate the whole building even though he lives in half.

B. Depreciate only the full-rental half.

C. Depreciate the full-rental half plus the rented out space in his half for the years when he did that.

I've got my thoughts -- what are yours?

Thanks for info/advice!

Catherine

[Lion EA]

I'd treat it as if he had two buildings. One depreciation entry would be for the rental unit in the two-family house. The other unit in the two-family house would be his primary residence. If he rents out space in his primary residence, that would generate a second depreciation entry. (Well, multiple entries if he has appliances or renovations or whatever to depreciate, but you know all that.) Picture it as a purchase of two different buildings, one a residential rental and the other his primary residence. Then, if he has business use of his primary residence, OIH or renting out a bedroom, treat that as you usually would.

[OldJack]

Since all is under one roof the deprecition should be on square footage.

[Kimberly K]

Since all is under one roof the deprecition should be on square footage.

I agree, but I have seen where the half of the house has its own property taxes, utility bills ect., nothing is shared under the same roof. Since your client owns both, I would depreciate the whole house and account only 50% on the half then Square footage on the portion of the room depreciated. 2 Schedule E's.

[Pacun]

2 Schedule E's.

Only one Schedule E with A and B colums. I would think like 2 properties as someone stated. One for Rental and one for residence. I would do that because the rental property will be depreciated every year, while the residence will be depreciated only on the years when he shares his apartment.