Depreciation basis for converted rental property

[Vic14]

I purchased my primary residence in 2010 and converted it to rental property in 2020. For depreciation basis, I need to use the lesser of FMV and the purchase price in 2010. Since property has appreciated, I used the 2010 price. The question is for the cost of the land, I guess I should use to 2010 price as well not the FMV. Current FMV for the land is higher than the total purchase price (structure + land) in 2010.

[AmeliesUncle · Accepted solution]

Yes, that same rule applies to the land.

[Carl]

I used the 2010 price.

Correct, so no problem there.

For cost basis of the land, look at your most recent property tax bill. See what percentage of the tax value is assigned to the land. Then assign that same percentage of your cost basis to the land.

[Vic14]

Thanks, I used 2010 numbers. Also, I noticed redfin website shows historical property tax records showing land and additions assessed values.

[Carl]

Historical tax records for determining percentage of cost basis to assign to the land don't play. You use the "most current" tax bill you have for determining that. Oncs the cost basis of structure and land are set, they will never change.

[tagteam]

The 2010 cost (and ratio) would appear to be relevant since you are using that cost as the basis for depreciation.

[By George]

Be sure to add any capital improvements made to property during the owner occupied time, and allowing for depreciation, ie a 20 year roof now 10 years old is 1/2 of original cost.

[Vic14]

This is a very good point. But if the improvements are new (like a year before rental) then most of the cost should be be added to basis. However, TurboTax doesn't have the option of adding different dates for later improvements and property purchase. I guess in these cases, the basis should be entered manually and not using TurboTax calculator.

[Carl]

TurboTax doesn't have the option of adding different dates for later improvements and property purchase.

Either I'm interpreting that statement different from what you intended, or you may not be aware that you most certainly can enter dates for later improvements done after property purchase, as well as for improvements done after the property has been in service.  You simply add the property improvement in the assets/depreciation section of the program. The in service date will be the date the improvement is placed in service, or the date the entire property is placed in service; whichever is later.