I purchased a rental property for $180,000 (let's just assume this number includes all the acquisition costs, but not the loan costs, which get amortized over length of the loan). The total tax assessed value was $192,100 with $60,000 being the land portion. It took 3 months for approximately $70,000 in renovations before being listed for rent. For the initial cost basis, TurboTax appears to be calculating it as $180,000+70,000 ($250k) and then applying the ratio to get the improvement value, so the land value is calculated as $78,084 and improvements cost basis is $171,916. Does it not make more sense to calculate the improvement value before renovations to show the true value of the land and improvements, and then apply the total renovation costs to the improvements? In this scenario, the $180k purchase becomes a land value $56,221 and improvement value of $123,779, then add the $70,000 in building renovation costs, and the improvements cost basis is $193,779 for depreciation purposes, starting on date put into service. Which is the correct method?
