When your home is used to produce taxable income, the Internal Revenue Service allows you to claim depreciation even if the house sits empty. The IRS understands there may be reasons a property sits vacant, such as the need to make repairs or improvements, market conditions, or a temporary lapse in business. Once you start depreciating the home, you’ll continue to do so until you have fully depreciated it or have an event that causes the home to be permanently placed out of service.
If you use your house as a rental property, you can claim depreciation on the home even when it’s vacant. Depreciation begins on the date the home is first available for renting and ends when you retire the house from rental activity. You’re allowed to use the rental on occasion for personal reasons and still claim some depreciation.
Basis for Depreciation
Depreciation is calculated using your basis in the property. The term "basis" refers to your capital interest in the home. In most cases, basis is the price you paid for the home, plus the cost of certain items you’re not allowed to deduct, such as title fees, transfer taxes and abstract fees. If you converted your home from a personal residence to a rental property, your basis is the fair market value of the home on the date of the conversion plus the cost of any improvements made after conversion. You can’t depreciate the value of land, so you must subtract this amount from your basis for depreciation.
Business Use of Personal Residence
You can claim depreciation on an empty personal residence that’s not a rental when you still use part of the home for business. If you maintain an office at the home and regularly use the space for work, you can claim depreciation as a business expense. However, you can only depreciate the space you use for business. In most business-use cases, you won’t be allowed to depreciate your whole house. To calculate the basis for depreciation, you’ll have to measure the square footage of your work space and divide the result by the total square footage of your home. Multiply the result by your cost basis and you’ve got the depreciable amount.
Retired from Service
When you rent your home or use a section of it for business reasons, several events can occur that cause your property to be retired from service. You voluntarily retire your home when you sell it or convert it from business use to purely personal use. Your property is involuntarily retired if it’s destroyed by fire, tornado, flood or other natural disaster. You’ll stop depreciating your property on the date a retiring event takes place.
With a background in taxation and financial consulting, Alia Nikolakopulos has over a decade of experience resolving tax and finance issues. She is an IRS Enrolled Agent and has been a writer for these topics since 2010. Nikolakopulos is pursuing Bachelor of Science in accounting at the Metropolitan State University of Denver.