How to Expense Real Estate Depreciation With No Rental Income

Determine Your Depreciation Expense

1). Determine your depreciation basis. In general, your basis for depreciation includes your purchase price for the property plus certain miscellaneous fees required to place the property in service. Examples of these fees include legal and recording fees, title insurance, surveys and utility installation fees.
2). Determine the month and year you first placed the property in service. The month the property was available to rent is your month of service, regardless of when it actually first rented.
3). Apply your month and year of service to the Modified Accelerated Cost Recovery System, or MACRS, percentage depreciation table for rental real estate to your depreciation basis. Rental real estate depreciates over a period of 27.5 years. Your first year depreciation varies depending on when the property was placed in service. If this is your first year depreciating the property, reference the percentage table in IRS Publication 527 to figure your first year depreciation. Each subsequent year depreciates at a rate of 3.636 percent until your basis fully depreciates.

1). Obtain IRS Form 4562, Depreciation and Amortization. Write your name and Social Security Number at the top of the form.
2). Report your depreciation on line 19h, Section B. In box b, write the date and year you placed the property in service. In box c, report your basis for depreciation. In box g, write your depreciation expense for the year.
3). Record the amount shown in box g, line 19h on line 22, Part IV, Summary.

1). Obtain IRS Schedule E, Supplemental Income and Loss. Write your name and Social Security number at the top of the form.
2). Record the address of your property in Part 1, section 1A. Answer the personal use question in Part 1, section 2.
3). Record your depreciation expense on line 20, column A. Since you have no rental income, you have a loss from your rental activity. Your loss is equal to your depreciation expense, unless you have other rental real estate expense for the year. Record your loss on lines 23 and 25.
4). Transfer your loss to your Form 1040 individual income tax return, line 17. Attach Form 4562 and Schedule E to your 1040 before filing.