rental property new basis?

Question

My property appraised at $100k before I rented it out. 4 yrs later, I suspect it would appraise higher - how can I change the basis for calculating depreciation? I am going to move back in for ~5mo this year, then rent it out again. Can I get it appraised and go with the new basis then? THanks!

Easy - folks, I am not trying to break the law...just trying to understand the law. Thanks for the informative answers!

Answer 1

The only basis you will ever have is what you originally paid for it plus any permenant improvements.

The person below me is correct but only if you have a reasonable means of seperating the value of the land from the value of the building that sits on it. Most residential property is purchased as a package, and the full value can be depreciated.

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For the second time in a year, Bostonian has schooled me.

Land is not depreciable except in very rare cases and as far as I can tell, you have to get the US Tax court to rule in your favor because the IRS won't.

I researched the legislative history of section 167 and found nothing that said you have to seperate the land from the building when they're purchased together.

I researched about 50 tax court cases (summaries) and found not a single case where this was disputed.

Bostonian pointed out to me (correctly) that the IRS requires the seperation, even though it's not specified in the tax code, nor is remedy offered in IRS publications.

So I called the IRS and got up to a senior tax agent (not a flunky).

The deal is you have to find a "reasonable" means of seperating the cost of the land. Your first authority is buying the land seperately. If you didn't, your next authority is your property tax record, and you allocate the cost by percentage. Your next authority would be transactions in your neighborhood involving sale of vacant lots.

So I asked "how do I defend my own "reasonable" means?"

He said, "I'm not an auditor. It is our policy to request as nicely as we can that you not ask us to define that word." And that's where we left it.

So it can be done, and you're required to do it. This is a case where the law is "presumed", not written, and one of the cases I read actually said as much.

Answer 2

The only way you can change your basis is by investing in improvements to the property.

Your basis is the lower of the actual acquisition cost when you purchased the property (adjusted for any improvements or previous depreciation deductions) or the actual cash value when you placed it in service as a rental. Unless you paid more than $100k for the property, your basis is what you paid for it, NOT the $100k appraisal at the time you converted it to a rental.

You CANNOT adjust your basis just because the value of the property has increased. Sorry, but it doesn't work that way.

BTW, Shibboleth is WRONG! You MUST separate the value of the land from the total basis. Land is NEVER depreciated, only the improvements, i.e. the building(s) on the land. You may be able to argue your valuation on the land (lower is better for tax purposes now but will bite you when you sell) but you must apportion the investment before you start calculating depreciation.

Answer 3

2

Answer 4

It looks to me like you are looking for trouble with the IRS. Your basis in property is:
1. What you paid for it (less the land or an estimate of the value of the land) You can not claim there is no way to separate the value of the building and land and depreciate the total package of both!!!!
2. Fair market value at some point where title was transferred to you in the past. For example from an estate or gift.
3. Basis in an exchange

The jacking around you are doing with frequent new appraisals will get you into a fraud audit by an IRS agent! One of the first things they will ask for is proof of your basis when you are audited.

Good luck in prison.

Answer 5

No, sorry.

I assume you purchased the rental property. The basis for depreciation is your investment in the property, and is not figured from the latest appraisal of the property.

At the time you begin renting the property, the basis for depreciation for your rental property is the smaller of

1. Your "adjusted basis": original purchase price (not including the land), plus improvements, minus casualty losses, (let's say $50,000).

2. The fair market value on the date of conversion ($100,000).

So in this example, your basis for depreciation is $50,000. As you depreciate the property, your adjusted basis decreases by the amount of depreciation. So after four years, your adjusted basis is about $40,000.

If you take the property out of service for a while, and then reconvert it, your basis for depreciation is now the lesser of

1. Your adjusted basis ($40,000)
2. The FMV of the property on the date of the second conversion (which is more then $100,000).

The higher reappraisal has no bearing on the basis for depreciation.

Answer 6

Your basis is what YOU have into it, not what its value was when you started to rent it out. If you've been deducting depreciation all along based on an appraisal rather than what you paid for it plus any allowable additions like improvements, then you have four years of tax returns to amend.

Answer 7

Yes, you can change the basis of the rental property to the FMV.........but only if you are willing to die and your wife, or kids, or family do a 706 on it.

Other than that, what you paid for it plus any improvements, minus any deprecation claimed on the building is your basis.

Answer 8

what the person above me said,, minus the value of the land cuz you don't depreciate the land.

Answer 9

Rent-To-Own Home - http://RentToOwnHome.uzaev.com/?qgxS