Rental and Fair Market Value

Forum|Forum|3 years ago
February 24, 2023
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In the step by step approach of TT, it informs to " Fill in the fair market value of your rental property on the date it was ready and available for rent. The FMV of the rental includes the land. My questions include: 1) should I include the cost of land when the rental property is on my primary residence land but a separate building; and 2) if I include the cost of the land should I apportion the original cost of the property based on square feet of the rental compared to the main house? That is, if the value of the house and land was 500K at original sale, and the rental was 50% of the total square feet of living space, I would assume the FMV would be 250K, which would include the land.

MAK70

Yes, you will want to include the fractional land value that matches the rental portion of your total property. If you have a lot of acreage that the tenant will not have access to, you could use reasonable means to apportion the land differently, but keep very good records of how you calculated the amount.