In July of 2005 my client bought a building that was classified as a residential rental and depreciation commenced at a life of 27.5 years. In January of 2015 a restaurant was established as an S Corp on the street level of the building. The square footage of the restaurant was approximately 45% or the total square footage of the building and my client kept his personal residence above the restaurant utilizing the balance of the square footage . Can or does the building need to be converted to a "commercial rental property" and if so what basis is used for the conversion? As an aside, the restaurant has not paid any rent to my client(who owns the building). Is it then still able to be classified as a residential rental or commercial property? Will then a schedule E still be necessary to prepare?