Depreciable Basis for Rental Property

[Teddy17]

I purchased a condo rental property at the end of 2021 and put it in service to be rented in January 2022. I valued the condo at $240k per the appraisal, and I added $5,919 in closing costs to acquire the property to the basis. Per my county's tax assessment, land is valued $24,360. When I run this through turbo tax, it is valuing my depreciable basis as $223,258 while the land was then valued at $22,661. I don't understand how the depreciable basis for the building was calculated and how the value of land is being decreased. Any thoughts?

[HelenC12]

I was not able to recreate what you are experiencing in TurboTax. Per you information, I entered the cost basis as $245,919 less land $24,360. The TurboTax Depreciable basis is $221,559 ($245,919-$24,360). 

• If you are claiming Percentage of business use less than 100%, that would affect the depreciable basis. 

[Teddy17]

Thanks for sharing. It was rented out for 261 of the 365 days last year, but it was placed in service at the beginning of January. It was never used for personal use during the 104 days--we were trying to rent it out during this time. I'm not seeing where business use percentage is in TT is. Is it calculated based on the days rented?

[MarilynG1]

If the property was never used for personal purposes, you can indicated that it 'was rented all year' (from date placed in service), whether it was actually occupied or not, as long as it was 'available for rent'.

Here's more info on Rental Days.

@Teddy17 

[Teddy17]

Thanks! I updated the rented days to 365, but the depreciable basis and corresponding depreciation went unchanged. I'm with Helen in thinking that the depreciable basis should be $221,559, but TT isn't showing that.

[RobertB4444]

You're going to need to delete the property and start over.  Be very careful to make sure that you tell the system that the property was a rental for the entire year and that you had no personal use of it.  

This isn't a bug in TurboTax and we can't recreate your error.  So re-entering the information and making sure the information is correct all the way through should fix the problem.

@Teddy17 

[Carl]

I valued the condo at $240k per the appraisal

For depreciation purposes, you do not use appraisal values. You use the "LOWER" of what you paid for the property when you originally purchased it, or it's FMV on the date placed in service. Most likely, what you paid for the property is the lower value and is what you would use for depreciation.

The below information is provided for other readers, as they may find it beneficial.

Depending on a number of factors, the program may or may not ask you for all the closing costs you paid.

Now on the screen where you enter values you have two boxes.

COST: This is what you paid for the property in it's entirety.

COST OF LAND: the amount of what you entered in the COST box, that is allocated to the land.

To determine the amount to allocate to the land, the program will use the tax appraisal values from your most recent tax bill. It will *not* use the tax values for depreciation. The program will figure out what percentage of the tax value is assigned to the land. Then the program will use that percentage to figure what percentage of the amount in the COST box gets allocated to the land and entered in the COST OF LAND box.

Typically, any costs associated with acquisition of the property are added to the cost basis. An example would include the title transfer fees paid at the courthouse to remove the seller's name from the deed and replace it with the buyer's name.

Costs associated with acquisition of the loan are amortized and deducted (not depreciated) over the life of the loan. An example would include loan application fees, as well as property survey fees if a property survey was required by the lender as a condition of loan approval.