Background information: The purchase price of our new construction, detached, single family house (settlement in March, 2021) was $675K, including the lot. We added $25K of real property improvements. This house is not, and never has been, our primary residence. We are planning to engage a property management company to rent out the house, for the first time, starting on 8/1/2022 for 8-12 months, after which time we will sell this house.
I am confused about how to correctly account for the value of the lot when calculating 1) annual income taxes and 2) long term capital gains on the sale of the residential real estate.
Questions (hopefully, the right ones): Would the IRS consider this house a second home / vacation home or an investment property? When calculating our 2022 and 2023 income taxes, will the annual depreciation number for 2022 and 2023 be based on $700K ($675K + $25K) or on ($675K minus the value of the lot/land) + 25K? When calculating the long term capital gain when we sell the house in 2023, will the accumulated depreciation number be based on $700K ($675K + $25K) or on ($675K minus the value of the lot/land) + 25K?
