I bought a property in 2012 and start to use it as a rental property in 2016. But I did not claim any depreciation in my last 3 year's tax return since my rental income is almost 0 without the depreciation anyway. But I just learn that IRS will charge depreciation recapture tax no matter if I take depreciation or not when I decide to sell the property.
My question is if I start to do depreciation this year, how should I determine my Cost of asset?
Should I use
1) the purchase value I paid in 2012 minus the land value of my 2016's property tax bill?
2) the purchase value I paid in 2012 minus the land value of my 2012's property tax bill?
3) certain % (say 70%) of the purchase value I paid in 2012?
Will IRS always use the same cost basis I reported in my tax return when they calculate depreciation recapture? Or they have their own way of doing that? If so, what kind of cost basis they will use? I want to make sure I can use all the depreciation allowable in my tax return.
thanks
