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March 1, 2007
Taxes & basis for depreciation
Full disclosure, it's a stupid question, but here goes:
How do I calculate the depreciable basis of my rental property for tax purposes? I bought the rental property at the end of last year, so this is all new to me.
Yes, I know I should be asking a tax person, but I'm my tax person. I'm doing my own taxes and I'm using TurboTax.
So...say I paid $1M for the property (land + house). How do I figure out the depreciable basis of the house (not land)? The "Notice of Property Value" from NY Dept of Finance shows a market value, an assessed value and a value that my tax is based upon. How do these fit into this, if at all.
Boy am I glad this is anonymous!!!
Many, many thanks.
Comments
you declare the % of the value that is for land and that is for the house. For tax purposes you want as much as possible to be for the house because land is not depreciable. I think 80/20 is reasonable in most instances.
For residential properties I believe the depreciation schedule calls for 27.5 yrs but this can easily be confirmed with your accountant or tax software program or probably even through a google search.
So if you declare the value of the property at $800k (80% of $1M) then divide by 27.5 yrs you get a yearly depreciation of $29,090/yr.
Posted by: Anonymous at March 2, 2007 8:40 AM
You can only depreciate the rental portion of the house, not the part you live in. (I am not an accountant but that's what our accountant told us) 27.5 years is correct.
Posted by: bojolais at March 2, 2007 9:55 AM
If you have a 4 story Brownstone and rent out the upper duplex, you can only depreciate 1/2 of the value of the home. So the above poster is correct. Only the portion of the house that is used for rental purposes can be depreciated over 27.5 years.
Posted by: NewStoner at March 2, 2007 10:05 AM
Your Notice of Property value is irrelevant when it comes to your cost basis. For tax purposes, your cost basis is the the price you paid plus any points, not market value.
If you live in the property, only the rental portion is depreciable. Dont forget about mortgage interest and utilities. They are also major write-offs.
Posted by: Anonymous at March 2, 2007 10:30 AM
Original poster here...Thanks so much!! I was going to use 50/50, but the 80/20 sounds much better.
Posted by: Anonymous at March 2, 2007 11:15 AM
You can also add all of your closing costs to the cost of the house, which ups your deduction!
Posted by: Pretty Polly at March 2, 2007 12:26 PM
You can also add all of your closing costs to the cost of the house, which ups your deduction!
Posted by: Pretty Polly at March 2, 2007 12:27 PM
uh...i understand that land does not depreciate, but when you buy a piece of property you depreciate against what you paid. there's no intermediate step of deducting for the land underneath the property from the amount you're depreciating. the rate of depreciation is 27-1/2 years. if you have 2 family house that you paid a 1M for, and you occupy half, then you divide 500K by 27-1/2, and that's your yearly depreciation.
Posted by: Anonymous at March 2, 2007 6:10 PM
I disagree with you 6:10. What you bought was house plus land. If you can show the IRS that the value of the land without the house is $0 then you might be ok. If not, you could get into trouble.
What should really be used is the replacement cost as anything beyond that is the land, location, etc. The idea behind depreciation is that in 27.5 years the value of your roof, windows, kitchen cabinets, appliances, etc. will all be $0. This actually makes sense since these things usually get upgraded at least once during that time.
Whether you use 50/50, 80/20, or something else for the split between land and house will really depend on where you are located. A 2,000 square foot house costs the same to build in Brooklyn Heights as it does in East New York. The difference in price for two equal homes in different areas in the value of the land which should not be depreciated.
Posted by: Anonymous at March 2, 2007 6:49 PM
You spend $1 Mil on buying a home yet you use Turbotax to do your own taxes. Then you come to a web forum for addtional tax related consultation.
Man you're fuckin CHEAP.
Posted by: spare a dime? at March 2, 2007 8:54 PM
i'm the 6:10 poster. i've owned rental property for 15 years, and the land did not figure into my accountant's depreciation schedule at all. just sayin'. i'm not an accountant.
i also agree with 'spare a dime?' though, and would urge you to see an accountant in order to set up the depreciation schedule the first time. it'll be worth it, i think.
Posted by: Anonymous at March 3, 2007 9:21 AM
Hey "spare a dime", the correct term is frugal.
Posted by: Anonymous at March 4, 2007 12:38 AM
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