Depreciation starts when a property is placed in service, and IRS Pub 946 defines that as the date the property is ready and available for a specifically assigned function. For a rental, that means habitable and genuinely offered for rent. Three dates investors commonly confuse:
- Closing date: starts legal ownership, not depreciation. If the property needs work before anyone could live in it, it is not in service yet.
- Listing date: this is usually the trigger. Once the unit is move-in ready and you are actively marketing it, it is placed in service even if it sits vacant for months.
- First tenant's move-in: irrelevant. Waiting for a signed lease to start depreciation leaves deductions on the table.
Why the date matters twice
First, it fixes which tax year your depreciation, including bonus depreciation, lands in. Second, under the OBBBA rules, the bonus rate depends on both the acquisition and in-service dates: qualified property acquired after January 19, 2025 gets a permanent 100% rate under IRC section 168(k), while property acquired on or before that date keeps the phase-down tied to the placed-in-service year, 80% for 2023, 60% for 2024, and 40% for 2025 placements. For most buyers today both dates fall after the cutoff and the answer is simply 100%.
Real property also uses the mid-month convention: whatever day of the month you place it in service, MACRS treats it as mid-month, so a December 28 in-service date still earns half of December's depreciation, and 100% bonus on reclassified components is not prorated at all.
A worked example
You close on a $640,000 duplex on November 20, 2026, then spend 10 weeks on renovations. You list both units on February 3, 2027. Depreciation begins in February 2027; nothing is deductible as depreciation in 2026, and the renovation costs are capitalized into basis. Alternative: the property is rent-ready at closing and you list it on December 1, 2026. Now it is placed in service in 2026, the building earns a half month of December depreciation under the mid-month convention, and a cost segregation study could put 100% bonus depreciation on the reclassified components against your 2026 income, even though the first lease might not start until March 2027.
Caveats
Intent is not enough; documentation is. Keep the listing screenshots, the certificate of occupancy, and dated photos showing the unit was rent-ready. A property you used personally first follows conversion rules, with depreciable basis at the lesser of adjusted basis or fair market value on the conversion date per Pub 946. And for short-term rentals, the in-service date also starts the clock on the average-stay math: majority stays under 30 days make the building 39-year nonresidential property under the Pub 946 transient-use rule, while the separate 7-day average stay test of Reg 1.469-1T(e)(3) governs whether losses can be non-passive.