Cost Basis Adjustment and Depreciation
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New Member

Cost Basis Adjustment and Depreciation

I'm curious how depreciation works when you make improvements which adjust your cost basis. We have made improvements to a rental property over the years that, according to my research, should increase our cost basis. These include basement waterproofing, a new deck, and a new electrical panel.

 

Let me demonstrate my question with a numerical example.

Say the original cost basis was $100k, and we have been depreciating the property for 5 years at this cost basis, for a total depreciation of $18,182. Now let's say we put on a new roof to the tune of $10k. There is now a total of $91,818 remaining to depreciate, but the house has already been depreciated over 5 years. Do you just depreciate the total remaining $91,818 over the remaining 22.5 years, or do you split it, depreciating the $81.8k over 22.5 years and the $10k roof over 27.5 years, or do you reset the clock on everything?

 

Thank you in advance!

3 Replies
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Level 15

Cost Basis Adjustment and Depreciation


@ryant1202 wrote:

Do you just depreciate the total remaining $91,818 over the remaining 22.5 years, or do you split it, depreciating the $81.8k over 22.5 years and the $10k roof over 27.5 years....


You would split it, as you wrote, depreciating the roof over 27.5 years and continuing to depreciate the structure over 22.5 years.

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Level 6

Cost Basis Adjustment and Depreciation

The new asset will be added to your list of assets as  a totally new entry  ... so you will show the prior year assets depreciating like normal and ADD the roof improvement  which will start it's own depreciation schedule ... do NOT mess with the building  already listed. 

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Level 15

Cost Basis Adjustment and Depreciation

IN the Assets/Depreciation section enter your property improvement and the cost of that property improvement. Depreciation starts on *THAT* property improvement on the date it's placed "in service". For a rental property, the asset is considered to be "in service" the first day it was "available for use". Not necessarily the date the work was completed, or the date a renter actually moved in.

When entering your new roof as an asset, it gets classified as "residential rental real estate" and is depreciated over 27.5 years, starting on the date the roof was "in service" and actually available to the renter or prospective renter.

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