One time special depreciation

[Mighty-Dollar]

For most of 2016 (and just 1 month of 2017) I converted my home to a rental home for the first time. But I'm done now and don't ever plan on renting out my place. I am now back living in my home. At one point the refrigerator and dryer broke down and I replaced them with new units. In TurboTax I elected to do this "one time special depreciation" in addition to just "depreciation". The special depreciation amount shown is nearly half the cost of these appliances even though there was only 5 months of actual use while renting. So should I go ahead and take these big "special depreciation" deductions? My understanding is that for the next tax year I must do some sort of "depreciation recapture". Does that mean that I will have to pay the IRS back for some of the "special depreciation" deductions?

[SeattleCPA]

I doubt you needed to depreciate the appliances... didn't they fall under the $2500 safe harbor and so qualify as supplies?

[Mighty-Dollar]

I don't know. Turbo Tax is allowing me to enter it as an asset. They have a category "Assets/Depreciation" and under that it says property, improvements, appliances, points. When I click "learn more" it says "Enter new assets used in your rental like refrigerators, or water heaters".
And if you scroll half way down to "Table 2-1.MACRS Recovery Periods for Property Used in Rental Activities" they have refrigerator listed
https://www.irs.gov/publications/p527/ch02.html

[SeattleCPA]

Check this old post at my blog:

http://evergreensmallbusiness.com/small-businesses-and-the-new-sec-263-repair-regulations/

Pay special attention to the description of the "de minimis safe harbor"... but note that after I posted that article, IRS changed the $500 threshold to a $2500 threshold.

[Lives to travel]

My understanding is that for the next tax year I must do some sort of "depreciation recapture". Does that mean that I will have to pay the IRS back for some of the "special depreciation" deductions?

Your recapture shouldn't be until you actually dispose of the property.  IRS Pub. 523 has a handy, fairly easy to use worksheet that will calculate the amount you will need to pay for recapture.  If you end up selling the property at a loss, you may also not have to recapture depreciation.  The worksheet walks you through all the basis adjustments.

[Mighty-Dollar]

My understanding is that for the next tax year I must do some sort of "depreciation recapture". Does that mean that I will have to pay the IRS back for some of the "special depreciation" deductions?

Your recapture shouldn't be until you actually dispose of the property.  IRS Pub. 523 has a handy, fairly easy to use worksheet that will calculate the amount you will need to pay for recapture.  If you end up selling the property at a loss, you may also not have to recapture depreciation.  The worksheet walks you through all the basis adjustments.

But I'm back to using the house for personal use. The appliances started as being in service for business and and now for personal use. I do not plan on ever renting the house again. Am I effectively "disposing" of the appliances?

[Lives to travel]

Were the appliances built-in?  IRS Pub 523 includes built-in appliances as improvements that increase your basis.  My interpretation of the reg is that that depreciation you took for those appliances (assuming they were built in and considered an improvement) will remain until you dispose of the house.  At that time, you will need to figure out if you will be subject to recapture or not.  If you do not sell the house and it passes on to your heirs, that accumulated depreciation MAY wash away (not sure if a transfer of a house after death grants a step up in basis to your heirs).

I hope this helps and doesn't confuse.  The IRS regs aren't very good about answering specific questions.

[Mighty-Dollar]

Built-in like an oven or dishwasher? No. Just a regular washing machine and frig.