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Cost Basis for Rental Property Depreciation

 
 
Sox04
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      02-22-2006, 01:51 PM
Last year I moved out of my Condo and converted it into a
rental property. I'm having a difficult time trying to
figure out my cost basis for depreciation. My purchase
price ($93,000) is less than the FMV so I'm going to use
that as my basis; however, I can't figure out what
percentage of the purchase price is allocated to the land
versus the building structure. The apprasal and closing
settlement papers don't have the value of the land. And I
don't think my property tax bill is correct either because
it only allocates $1,000 to the land value and $102,000 to
the building structure. When I called the county about my
property tax bill they said that they always put $1,000 as
the land value for all Condo's regardless of the overall
value of the property. That does not seem correct to me.
Is it true that Condo's typically have an extremely low land
value? Should I assume the $1,000 land value is correct or
is there a "generally accepted" percentage that I can use to
determine the value of the land compared to the building
structure?

Thanks!

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A.G. Kalman
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      02-23-2006, 08:28 AM
Sox04 wrote:

> Last year I moved out of my Condo and converted it into a
> rental property. I'm having a difficult time trying to
> figure out my cost basis for depreciation. My purchase
> price ($93,000) is less than the FMV so I'm going to use
> that as my basis; however, I can't figure out what
> percentage of the purchase price is allocated to the land
> versus the building structure. The apprasal and closing
> settlement papers don't have the value of the land. And I
> don't think my property tax bill is correct either because
> it only allocates $1,000 to the land value and $102,000 to
> the building structure. When I called the county about my
> property tax bill they said that they always put $1,000 as
> the land value for all Condo's regardless of the overall
> value of the property. That does not seem correct to me.
> Is it true that Condo's typically have an extremely low land
> value? Should I assume the $1,000 land value is correct or
> is there a "generally accepted" percentage that I can use to
> determine the value of the land compared to the building
> structure?


There is no generally accepted amount. First you need to
find out whether you actually have an ownership in the
common grounds of the property. If you do, then part of your
purchase cost would have to be allocated to the common land.
Speak with the condo association, local realtor or anyone
else who is renting a condo to get an idea as to what they
are using for the allocation.

<< ================================================== ===== >>
<< The foregoing is intended for educational purposes only >>
<< and does NOT constitute legal OR professional advice. >>
<< >>
<< The Charter and the Guidelines for submitting >>
<< messages to this newsgroup are at www.asktax.org. >>
<< Copyright (2006) - All rights reserved. >>
<< ================================================== ===== >>
 
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Mark Bole
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      02-24-2006, 12:19 AM
A.G. Kalman wrote:
> Sox04 wrote:


>> Last year I moved out of my Condo and converted it into a
>> rental property. I'm having a difficult time trying to
>> figure out my cost basis for depreciation. My purchase
>> price ($93,000) is less than the FMV so I'm going to use
>> that as my basis; however, I can't figure out what
>> percentage of the purchase price is allocated to the land
>> versus the building structure. The apprasal and closing
>> settlement papers don't have the value of the land. And I
>> don't think my property tax bill is correct either because
>> it only allocates $1,000 to the land value and $102,000 to
>> the building structure. When I called the county about my
>> property tax bill they said that they always put $1,000 as
>> the land value for all Condo's regardless of the overall
>> value of the property. That does not seem correct to me.
>> Is it true that Condo's typically have an extremely low land
>> value? Should I assume the $1,000 land value is correct or
>> is there a "generally accepted" percentage that I can use to
>> determine the value of the land compared to the building
>> structure?


> There is no generally accepted amount. First you need to
> find out whether you actually have an ownership in the
> common grounds of the property. If you do, then part of your
> purchase cost would have to be allocated to the common land.
> Speak with the condo association, local realtor or anyone
> else who is renting a condo to get an idea as to what they
> are using for the allocation.


"Condominum" refers to a legal form of ownership (different
from a "co-operative"). With a condominium, you do own a
share of the land. Determine the fair market value of the
land your building(s) sits on, and take your share of that
as the land portion of your condo (the share allocated the
same way the owner's association allocates other shared
costs to you, for example 1/30th based on thirty units).

If you are not certain of the fair market values, you are
allowed to use the values assesed for real estate tax
purposes, which in your case sounds like a good deal, since
you can depreciate almost all your cost basis. See Pub.
527. And no, county-assesed values are frequently not
reflective of economic reality, for example where I live the
county automatically assigns 50% to land no matter what (the
opposite extreme from yours).

Also, if personal property such as refrigerator was included
in the original purchase, you can separate that out for
depreciation purposes.

-Mark Bole

<< ================================================== ===== >>
<< The foregoing is intended for educational purposes only >>
<< and does NOT constitute legal OR professional advice. >>
<< >>
<< The Charter and the Guidelines for submitting >>
<< messages to this newsgroup are at www.asktax.org. >>
<< Copyright (2006) - All rights reserved. >>
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