Rental home and depreciating it.

[mckee31]

We bought a home in 1984 and lived in it for 33 years. We paid $35000 for the house and the land that it is on. I don't know how much of that was the house and the land. In 2016, we rented it for the first time. Although it cost $35000, we added a new kitchen, another bathroom, gutted the inside, added windows, a/c, roof, driveway, deck etc...We have approximately $100,000 worth of improvements and the fair market value is around $155,000.  How do I enter the land value, and all of the improvements in turbotax?

[MichaelL1 · Accepted solution]

When you enter the home the first year of rental, you will get a number of questions.

Cost of the property is going to be: what you paid for it in 1984, plus closing costs at that time, plus improvements made from 1984 till a rental. so based on above, your cost would be around $135K.

Fair market value you have of $155K

Land value: a good place to look is county tax assessor statement or web site.  For example if it shows $130K build and $20K land then the land ratio is 13.3% of the total.  Then multiple that by adjusted cost basis of the $135K (the amount you come up with) and then the land value is $18,000, and the remaining is the building. 

Not all counties break out land.  So you may ask the insurance company the values, or a realtor. 

Per the tax law, a personal residence converted to a Rental the deprecation is limited to actual cost (adjusted basis) or Fair Market Value whichever is lower.  

This is why you are getting all these questions.

Then, a year from now the taxes will be much easier, as all this information will carryover to the next year.  So take the time this year to do it right. 

[SKjames]

Great explanation. Very simple to understand. Very helpful. Thank you very much.

[gobigblue]

What if the ratio between the land and the improvements changes every year?  Is there another reasonable way to determine the true land to improvements ratio?  Thanks.

[ctruman12*]

How do you enter the depreciation of the house itself? where on the tax form do you enter it

[Cynthiad66]

You don't "enter" depreciation yourself per-se. The program does it 'for you" based on the information you enter in the assets/depreciation section.

Assets are entered in  the Assets/Depreciation section of the Rental & Royalty Income area of the program.

You only need to actually enter an asset the first year that asset is placed "in service". After that, the program will automatically import the prior year's entry and figure the current tax year's depreciation "for you".

To enter depreciation, go into the section for Assets and follow the prompts.  See the screenshot below.

Sorry, screenshot not allowed.  But just follow the interview for Rental Property until you reach "Assets"