Cost Basis for Rental Property Depreciation

Discussion in 'Tax' started by Sox04, Feb 22, 2006.

  1. Sox04

    Sox04 Guest

    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!

    << ======================================================= >>
    << The foregoing is intended for educational purposes only >>
    << and does NOT constitute legal OR professional advice. >>
    << >>
    << The Charter and the Guidelines for submitting >>
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    << Copyright (2006) - All rights reserved. >>
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    Sox04, Feb 22, 2006
    #1
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  2. Sox04

    A.G. Kalman Guest

    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. >>
    << ======================================================= >>
     
    A.G. Kalman, Feb 23, 2006
    #2
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  3. Sox04

    Mark Bole Guest

    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. >>
    << ======================================================= >>
     
    Mark Bole, Feb 24, 2006
    #3
    1. Advertising

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