MACRS Converting a Personal Residence to Rental Use
MACRS makes it simple for taxpayers to determine depreciation when they convert a personal residence to a rental property. The example below will help you better understand this process.
Example - Converting a Residence to Rental Use - Bill bought a personal residence in 2004 for $100,000. He has made no improvements to the home. In 2025, when the residence had a fair market value (FMV) of $250,000, he purchased a new home and converted the old residence to rental use. Bill will depreciate the rental using MACRS, using $100,000 (the lower of cost or FMV), reduced by the land portion, and a 27.5-year life to compute his cost recovery.
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When converting personal use property to business use, the FMV of the property can be a very important factor. If challenged, the IRS will want to know how the FMV was determined and will require more than a guess. They often require a certified appraisal. Taking short cuts can lead to problems in the future.
Issues When Converting a Home to a Rental
When a taxpayer converts their home to a rental, there are a number of tax issues that come into play; see the Rental Activities Section.