Residential Rental Property Depreciation Procedures
The IRS has released a revenue procedure explaining how a taxpayer changes its method of computing depreciation for certain residential rental property. Automatic consent procedures for changing accounting method are available for taxpayers adopting the depreciation method changes.
Residential Rental Property Allowed 30-Year ADS Depreciation
Tax Cuts and Jobs Act ( P.L. 115-97) added residential rental property held by an electing real property trade or business to the list of property to which a 30 year recovery periods applies under the alternative depreciation system (ADS), thus changing the recovery period from 40 years to 30 years. The change applied to property placed in service after December 31, 2017, and therefore only to property newly placed in service.
The Taxpayer Certainty and Disaster Tax Relief Act (Taxpayer Certainly Act) ( P.L. 116-260), enacted December 27, 2020, extended 30-year depreciation to apply to residential rental property placed in service before January 1, 2018 held by certain electing real property trade or businesses. To apply the 30-year recovery period to property already placed in service, taxpayers have to change their computation of depreciation for the property.
Procedures Provided for Changing Depreciation Method
This revenue procedure permits taxpayers who are affected by the Taxpayer Certainly Act’s retroactive effective date to file an amended federal income tax return or information return, administrative adjustment request (AAR), or a Form 3115, Application for Change in Accounting Method, to change their method of computing depreciation of certain residential rental property held by an electing real property trade or business to use a 30-year ADS recovery period. If the property is included in a general asset account, it permits taxpayers to change their general asset account treatment for the property to comply with Reg. §1.168(i)-1(h)(2).
The revenue procedure also provides automatic consent procedures for
changing accounting method, and in certain cases simplified procedures,
for taxpayers adopting the depreciation method changes.