@Opus 17 Very helpful details, many thanks!! I got the difference between adjusted cost basis and FMV, the permanent improvements concept as you explained and your example below.
i am using TurboTax premier 2017 software and trying to make sure I am giving the info required by the software.
1)it starts with “enter purchase price”, where it wants the “original price you paid” to “help determine depreciation” so I entered it without any allowable purchase related escrow fees.
2) Then it asks “Fair Market Value” - the value is not relevant as it is much higher than my purchase price even with allowable purchase fees and improvements included. And therefore I assume the software will not used this FMV for depreciation
3) then it asks “ escrow fees “ for fees when I bought the home. And “improvements”
4) then it asks to “enter property tax values” and this is where the problem was. The instructions acknowledge that “assessed values” may not be reliable if improvements have been made but to still use the “assessed land value”. But for the “improvement value”, it says to “enter the value of the improvements based on your cost for that portion of the property, plus improvements you added after purchase”
Question: so, the software expects that I enter the assessed land dollar value for the *year the home is being used as rental* and for the improvement value, it seems to want me to use the cost of the home (which would be *based on a prior year* when the home was purchased + allowable escrow fees + improvements but minus the land value from the year the property is being rented).
it’s this last piece I need to be 100% sure because it would be using values of 2 different years to answer the question and I am required to answer land and improvement values question 😓
