@lasq90 wrote:
I highly doubt FMV was lower than the adjusted cost basis at the time of rental, given that FMV estimates tend to be quite above the State Assessment Values, I assume that using purchase price as the basis for depreciation perfectly complies with IRS guidance.
Is it correct to deduct land value at time of purchase instead of at in-service placement? ... since purchase price is what's being used as basis for depreciation rather than Assessment Value. Which one of the following is correct to be used as Land Value?
B) Apply 30% to the Purchase Price with closing costs (=$133,800)
Yes. Unless you have reason to believe the FMV dropped, you use the purchase price (including closing costs that adjust Basis), PLUS any improvement done between the purchase and when it was converted to a rental. Because the assessment values increased, it looks like the FMV increased, so use the purchase price.
Because you are using the purchase price as Basis, you use the price of the land at purchase. Assuming 30% is accurate, then use "B". However, be aware that not all closing costs come into play - only closing costs that affect Basis are factored in. Things like fees for a mortgage and escrow funds are not part of Basis.
