How to caculate Fair market value for rental property for first time?

[Fresher_TTU]

Hello,

I purchased the house in 2014 for $500,000 ( Land value was 95,000 and remaining was Improvements).

I rented the house in 2023 (last year 1st time) if I sell that house at that time it would be around $850,000 (estimates from Zillow and Redfin)

How do i calculate Fair market value ? Which provides breakdown for Land and Improvements?

TT is very confusing in navigating this.

Regards

R

[Mike9241]

Since FMV of the property is greater than your cost basis back in 2014 + subsequent improvements, for tax purposes you use the cost for depreciation of the building and improvements, not FMV. Only if FMV was less than cost would that be used.

[Fresher_TTU]

Thanks for your answer. One follow-up question. I am in the tax bracket 22% will i get 22% of depreciation in my rental income or what % of the amount will be reduced in my rental income?

Regards

R

[JohnB5677]

Perhaps, Your income has taken you up through the 10%, 12% and up to the 22% tax bracket.  

As you apply the deductions to your income it may drop below the 22% bracket.

So in 2023 for a married couple: If you drop below $89,451 of income, you will be in the 12% bracket.

For a single taxpayer

$0 to $11,000  - 10%

$11,001 to $44,726 - 12%

$44,726 to $95372 - 24%

For Married Filing Jointly

$0 to $22,000 - 10%

$22,001 to $89,450 - 12%

$89,451 to $190,751 - 22%

Please contact us again with any questions.

[Fresher_TTU]

My question is different.

Say, if if my depreciation amount is $300,000 for 27.5 year. It comes 10,909 per year.

Will I be able to subtract all these 10,909 from rental taxable income?

Or what % of this amount will be used to reduce the rental taxable income?

or Is it based on my current 22% tax bracket?

Regards

R

[KrisD15]

Land is 95,000 and does not depreciate.

Building is 405,000 depreciated over 27.5 is 14,727 per year.

14,727 will be a depreciation expense each and every year. 

Depreciation, as well as other expenses, will lower your rental income. 

Any new assets added, such as appliances, are depreciated separately. 

All the 14,727 is applied every year, the question is- if the rental results in a loss, is the entire loss claimed or is it limited. 

Passive loss allowed is based on your participation and income levels. 

[Fresher_TTU]

Thank you for your detailed response.