For the purposes of depreciation, the cost basis is the *LOWER* of
- What you paid for the property when you originally purchased it, or
- The FMV of the property on the date you placed it in service.
Typically, what you paid for the property originally will be the lower amount, and that is the cost basis used for depreciation.
Typically, the values on your most recent tax bill will be on average, 30% below the FMV of the property. That's why you can't use tax values as your cost basis. The program asks for your most recent tax bill for the sole purpose of determining what percentage of your total cost basis gets allocated to the land. That's it. The values on the tax bill are not used for any other purpose and are not reported to the IRS.
Overall, your cost basis for depreciation will be what you paid for the property when you originally purchased it, plus the cost of any property improvements you incurred while you owned it.
