Then your cost basis is $160K. Period. You don't list the property improvements separately in your case, because the appraised value already includes those property improvements. You simply list the property itself, with a cost basis of $160K making sure you allocate an appropriate amount to the value of the land. That does it. So when you start off reporting this rental on your 2015 or 2016 return, (I"m not sure which year you placed the property in service) the absolute only thing you should see under the Assets/Deprecation section, is the property itself, and that's it. Your "cost" entered in the cost box will be $160K and the "cost of land" will be whatever portion of that $160K you allocate to the value of the land. It's that simple.
Now depreciation is figured on the "LESSER" of what you paid for it, or it's FMV at the time the property was placed in service. In your case, what you paid for the property is the FMV on the date of passing of the prior owner who I understand is now deceased. So if you placed the property in service in 2016 for example, property values have without question, gone up since you inherited it. So there's no need to waste your time trying to determine it's value at the time you placed the property in service, since we know that value would be higher. Below is some additional information and clarifications of stuff that you will fine informative, educational and helpful. If you have questions, PLEASE ASK! You positutely absitively MUST get things right the first year, without question. If you get something wrong that first year with the numbers, then your initial "minor" error will get bigger exponentially each year. So if that happens and you don't catch the error for a number of years down the road, correcting that error will be VERY COSTLY! So I reiterate again, after reading the below if you have questions ASK THEM NOW during the initial setup of your rental property on your tax return. Remember, the only stupid question is the one you don't ask. Besides, I didn't learn this stuff through osmosis. I've been a landlord for 25 plus years now, and I've been there, done that, and even got the T-Shirt.
