Last year I purchased undivided ownership interest on some land from my cousins. This same property I declare as rental property (schedule E). How should I treat this?

[david-r-mullinax]

Could this transaction somehow be declared as a depreciable asset?

Or should I declare this as a legal expense?

To put this into further context:

*)  The land in question is 164 acres owned by my great grandfather.

*)  I pay the property taxes on it.

*)  I rent it out for cattle, and declare it as a "schedule e."

*)  There is no title on said property.  My great grandfather died without a will.

*)  I don't have a clear title as of yet.  I am currently trying to clear the title in court.

*)  Last year I spent $64,000.00 cash buying out heirs.  No loan.  No mortgage interest, etc.

[JulieS · Accepted solution]

No, you can't depreciate land, even when it is a rental property.

The amount you spend buying the land is its basis for gain or loss when you eventually sell. For example if you spent $64,000 on buying the property, and later sold it for $100,000, you would have a $36,000 capital gain.

You can claim your property taxes and legal costs as rental expenses.