Thank you for the post. It was the information I was looking for. If it is ok, I have a few follow up questions:
I filed tax with Turbo tax last year and wonder if I need to file 1040X.
I bought a $750K new house from a builder as a rental investment property in Nov last year. When I filed tax in April this year, I used the land value that the builder used in the previous year, $150K, making dwelling as $600K, which becomes a cost basis for depreciation.
However, in May, I received a property tax bill stating land is now $200K, so my depreciation cost basis seems now changed to $550K (from $600K that I filed this April).
My questions are:
- Do I need to file 1040 X to change the depreciation cost basis from $600K to $550K?
- My rental income is almost equal to expenses, so I have zero profit from the rental. However, with depreciation ($600K / 27.5 years = $21.8K), TurboTax shows I have $21.8K loss every year for the next 27.5 years. The loss seems large, and I wonder if it is ok with IRS?
- Suppose I sell the house at $1M in 27.5 years later. Since carried over loss is equal to depreciation over 27.5 years, would my capital gain be just $1M - $750K = $250K?
Thank you for your advice.
