To answer your questions in the order asked:
1) Your basis is set on your purchase price, not the assessed value. You may use the assessed values to determine what the portion of the land value and house value is then apply that percentage to your purchase price for the starting basis to use for depreciation.
2) No, by using this election you are not self-declaring my rental property income to be a business.
3) You may add the full amount of the cost of your allowable home expenses that you paid in connection with the purchase, including attorney's fees, abstract fees, owner's title insurance, recording fees and transfer taxes. They do not have to be pro-rated.
@taxman007
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