Investors & landlords

@DianeW777 

Good afternoon Diane,

Thank you so much for those details!  Very helpful.

In regards to adjusting my 2022 tax return with the land reallocation updates that we discussed, I am finding only a $200 gain in terms of a refund.  I don't think that gain may be worth it, even if I realize it each year for the next 5+ years.  However, what troubles me is it looks like I overinflated the replacement properties' costs (in the Asset section) for the 2 non-mineral properties.  With this error, I probably need to amend the 2022 return anyway.  Please see the questions below - Q2 related to this error.

Question 1:   For a mineral rights property, instead of depreciating an asset, you have depletion of 15% each year.  You mentioned this to me last year, and I used that 15% depletion as a deduction.  My question is, how does the basis allocated to the mineral rights property relate to this depletion?  For example, if I have only $20k of depreciable basis allocated to the mineral rights property, but over 5 years I take $40k worth of depletion, do I now have a negative basis?  Thus it makes sense to have perhaps more depreciable basis going towards the mineral rights property? 

Question 2:  Revisiting how I populated the Asset Cost numbers for my 2022 tax filing:

1. In regards to the Cost assigned to a replacement asset, that is simply its portion of the Additional Basis, in which the Additional Basis in my case equaled the new loan amount from the replacement properties minus the remaining loan amount from the relinquished property?  Correct?
   1. While it looks like I calculated and apportioned the Additional Basis correctly, I incorrectly added in the land value to that Cost number when the Additional Basis represents both the land and the asset.
   2. Example:
      1. Replacement Properties' New Loan Amount = $250,000
      2. Relinquished Property's Remaining Loan Amount = $100,000
      3. Additional Basis to allocate across Replacement Properties = $150,000
      4. Replacement Property 1 value as a percentage of all Replacement Properties = 30%
      5. Replacement Property 1 Apportioned Additional Basis:  30% * $150,000 = $45,000
      6. Replacement Property 1 Land Value of Property 1 Purchase/Cost:  20%
      7. Replacement Property 1 Apportioned Additional Basis allocated to Land:  20% * $45,000 = $9,000.  So far, is this correct?
      8. Error when populating Asset section:  Cost = $45,000 + $9,000 = $54,000. 
         1. I populated $54,000 in the Cost field when it should have been $45,000, correct?
         2. I populated $9,000 in Cost of Land field, which was right I believe, correct?

Please let me know your thoughts.

Thanks so much!

Jamie