Tax Law (Questions About Taxes)/schedule E


Hi John,
I have some questions regarding IRS schedule E, and I'd greatly appreciate it if you could answer them, as I googled for hours for answers but somehow can't find them.

I understand that landlords have to report their rental income when they rent out their houses for profit (not as business) on schedule E. My questions concern rental expenses that can be deducted from rental income, and are as follow:
1) a) I know property taxes can be deducted as an expense, but does it include both land and school tax? b) If you rent out your property for five months out of the year, do you deduct that whole year's taxes, or just five months worth of taxes?
2) I read from a website that IRS charges 25% recapture tax on the depreciation you received if you sell the property later. I also read that even if you don't depreciate your rental property, you'll still be charged the recapture tax when you sell it, so it's better to depreciate it during rental. Is this all true? I'm speaking of residential rental property, not a 179 section property, and  without special depreciation allowance.
3) I know a property is depreciated in 27.5 years (the recovery period). Is that 27.5 consecutive years or a total of 27.5 years? If you rent out your property in 2015 and 2016, and then stop for five years before renting it out again in 2022, does that count as three years (2015, 2016, 2022) or eight years (2015-2022)?
4) IRS publication 551 says, "To figure the basis of property you receive as a gift, you must know its adjusted basis (defined earlier) to the donor just          before it was given to you, its FMV at the time it was given to you, and any gift tax paid on it." What if you know only the fair market value (FMV)? Do you use the FMV at the time you receive the property or the FMV at the time you convert it to a rental property as its basis to calculate its depreciation?

Thank you in advance for your reply.


Thanks for your questions.

1. You deduct any property tax paid on the property only for the period in which it was used as a rental. So if you rented it for five months, you would deduct 5/12 of the taxes on Schedule E.
2. That is all true. Except I would add it must be sold at a gain. For example, assume a basis of $100,000 with $25,000 depreciation taken. If you sell it for $85,000 you only pay on $10,000 of depreciation recapture. If you sell it for $120,000, you have $25,000 depreciation recapture and $20,000 capital gain.
3. 27.5 years of depreciation total. 3 years in your example.
4. You must use the basis from the donor. You cannot use fair market value for a gifted property, with one exception. If you don't know the basis, you must make a reasonable estimate based on information available. You should be able to determine approximately when it was purchased by the donor by searching courthouse records. You may be able to determine the sale date and price from this info. If not, make a reasonable estimate of comparable properties at the approximate time of sale. You would only use the FMV at the time of conversion to rental property if the FMV is lower than the adjusted basis in the hands of the donor.

Hope this helps.

John Stancil, CPA

Tax Law (Questions About Taxes)

All Answers

Answers by Expert:

Ask Experts


John Stancil, CPA


I can answer questions on personal income taxes, partnerships, and some corporate income taxes. I can deal with some state tax questions. Limited gift and estate tax questions. I am also familiar with ministerial and church tax reporting issues. I am Professor Emeritus at Florida Southern College. Sales taxes and property taxes are state and local issues so I am not likely be be able to give you an in depth answer on those types of taxes. I have maintained a CPA practice, specializing in tax, for over 35 years. I am a member of the National Association of Tax Professionals, The Florida Insititute of CPA's, The NCPE Fellowship. In addition I am a Certified Mentor for SCORE. Visit my website at I also offer seminars and consultations to churches and clergy on their tax issues at Also visit my blog, I am listed on Tax Connections at Prepare and file your own taxes at


I hold a doctorate in Accounting, and am a CPA. My certifications of CIA, CFM, and CMA are inactive. I passed all certification examinations on the first attempt, and received honorable mention for my scores on the CIA exam. I have operated a CPA firm for over 37 years and have taught accounting and tax at the college level for over 35 years.

FICPA, NATP, NCPE Fellowship, Lakeland Business Leaders

The CPA Journal, Florida CPA Today, Green Consumer, Green Business, Global Sustainability as a Business Imperative, Palmetto Review, NATP TaxPro Quarterly, Mustang Journal of Finance and Accounting.

DBA University of Memphis MBA University of Georgia BS in Accounting Mars Hill University

©2016 All rights reserved.