Land value used in depreciation

[marcjy]

I started renting out a room in my home last year. In the depreciation process, do I use the land value at the time I purchased my home in 2008, or the current land value? Thank you.

[MinhT1]

Land is not depreciable. Your can only depreciate the home itself (improvements) over 27.5 years.

You should use your cost price. Your cost price must be divided into Land (not depreciable) and the home (Improvements), using the ratio in the taxable values used by the appraisal district.

[marcjy]

Should I use the land price in 2008 when I purchased the home or the land price today, I would think 2008 but I don't know. Thank you

[ColeenD3]

When depreciating a converted property, you choose the lower of adjusted basis or the Fair Market Value on the conversion date. If basis is lower, use the date of purchase for land. If the FMV is higher, use date of conversion price.

[marcjy]

Thank you, wanted to double check your last sentence, I think you meant to use the word "lower" for the word "higher", is that correct?

[ColeenD3]

Yes, it should be lower in both cases.

[Carl]

When converting real estate or any part of real estate from personal use to business use, the depreciation is based on the *LESSER* of what you paid for it, or it's FMV at the time the property was placed "in service" in the business. I seriously doubt the FMV of the property at the time placed in service, is less than what you paid for it. So you'll use the price you paid for the property since that's the lesser value.