Rental Property Depreciation - Land/Improvement Ratio & TT's Calculation

Forum|Forum|4 years ago
February 11, 2022
2 replies
17 views

Hello,

I'm working on the depreciation section of my tax return for a rental property I bought in May of 2021. TurboTax asks for the purchase price, which was 125,000. It then brings you through questions that allow you to add (or subtract) to the cost basis. My net addition is 14,640, which brings the adjusted cost basis to 139,640. After that, there is a question that asks me to enter "Property Tax Values" so they can calculate the land to improvement ratio. The property tax bill shows a land value of 30,000 and an improvement value of 75,100, a total assessed value of 105,100. I enter those amounts into the "Property Tax Value" screen.

I would expect, and I've read/been told by CPA's, that in order to calculate the land value to subtract from your adjusted basis is to divide the assessed land value, in this case 30,000, by the total assessed value, in this case 105,100, and then multiply the percentage by the PURCHASE PRICE. So I would expect to see 30,000 / 105,100 = 28.54424%. Then 125,000 x 28.54424% = 35,680. I would subtract 35,680 from 139,640 for a starting depreciation value of 103,960.

What TurboTax is doing, however, is taking the percentage for the land value and multiplying it by the ADJUSTED BASIS of 139,640 to come up with a land value of 39,859. This then gives you a starting depreciation value of 99,781.

Is anyone able to explain why TurboTax does it this way? Have I been led astray by what I've read online and what two CPA's have told me? Any help someone can give would be appreciated.

Thanks,

Mike

TurboTax Home & Biz Windows

Mike9241

Level 15

28.54424% times $139,640 =$39,859.

is this right? don't know. the actual answer depends on how assessed values are determined. you can already see that the assessed value is less than your cost. the question is what are they based on. in some locations land and structures have assessed values based on different %'s of their fair market value so you really can't determine a proper allocation based on the tax bills.

you may want to consult a realtor in your area for an opinion on their respective values.

also, know the IRS is not bound by how you allocate.

the IRS position is to allocate based on respective FMV on date of acquisition.

Mike9241

AmeliesUncle

Level 15

You should be able to manually enter the land value.

The program does not know that you added improvements AFTER the assessed value. It assumes the assesses value was based on the total Basis that you entered.