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Rental Property Depreciation Question - What is cost and cost of land?

Forum|Forum|3 years ago
March 25, 2023
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Hi,

I have a question on depreciating my rental property. I am asked to put the cost (amount you paid) and the cost of the land. My purchase price was $212,000 back in 2/2017. Would this be the cost I input or would I need to add taxes? The market value is different than the sales price, would this affect it?

For the cost of land, I searched my City's website and I can see that back in 2017:

Market value is $102,900

Taxable land is $28,915

Taxable improvement is $73,985

Would I input $28,915 as the cost of land?

Thanks!

Best answer by MonikaK1

Your depreciable basis in rental property is determined at the time it is placed into service as a rental. The basis of property used in a rental activity is generally its adjusted basis when you place it in service in that activity. This is its cost or other basis when you acquired it, adjusted for certain items occurring before you place it in service in the rental activity. If you used the property for personal purposes before changing it to rental use, its basis for depreciation is the lesser of its adjusted basis or its FMV when you change it to rental use.

Then, you will determine the proportion of your basis that represents land. You can refer to the county or city's determination to determine the percentage, but not the dollar amount. In your example, use $28,915 divided by the total value of $102, 900 to get the percentage of land. Then, apply that percentage to your total basis to get the dollar amount to allocate to land.

Please see IRS Publication 527 and this TurboTax tips article for more information on depreciating residential rental property.

M

MonikaK1Answer

Your depreciable basis in rental property is determined at the time it is placed into service as a rental. The basis of property used in a rental activity is generally its adjusted basis when you place it in service in that activity. This is its cost or other basis when you acquired it, adjusted for certain items occurring before you place it in service in the rental activity. If you used the property for personal purposes before changing it to rental use, its basis for depreciation is the lesser of its adjusted basis or its FMV when you change it to rental use.

Then, you will determine the proportion of your basis that represents land. You can refer to the county or city's determination to determine the percentage, but not the dollar amount. In your example, use $28,915 divided by the total value of $102, 900 to get the percentage of land. Then, apply that percentage to your total basis to get the dollar amount to allocate to land.

Please see IRS Publication 527 and this TurboTax tips article for more information on depreciating residential rental property.

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