What is the cost basis of rental property in my primary residence?

[KASinOR]

Can someone help this accounting challenged person figure out cost basis for a rental property?  I am trying to do my own taxes this year, after having paid an accountant $1,500 to do it for the past two years, but I can't quite figure out how to transfer his work into my own. 

I put a lot of figures into my question, which Turbotax community forum does not seem to like because it assumes they are social security numbers, telephone numbers or something else, so I included my lengthier question in the attached document

[TaxGuyBill]

Are you entering this for purposes of depreciation?  If so, you should look for a depreciation schedule from your prior tax returns and it should show the numbers (the 2015 and 2016 improvements need to be listed separately).

Or are you doing it for purposes of a sale (depending on how you report the sale, the 2015 and 2016 improvements can be combined into the rest of the Basis)?

[TaxGuyBill]

Sorry, I just looked at it again and you said it was for depreciation.  That leads to the next question:  WHEN did the property tax records base the value of building versus land?  Was it before or after the improvements were taken into account?

[KASinOR]

Hey TaxGuyBill, thanks so much for responding!  As to your question, the property tax records base on the value that I cite were for 2014, the year that I bought the house before the improvements were made.

[KASinOR]

But I just checked the distribution of the real market values for the land and the house for 2017, and it hasn't changed much since 2017, it is now 66.6% for the building and 33.4% for the land

[TaxGuyBill · Accepted solution]

$345,000 x 32.7% (land) = $112,815 total land

$112,815 x 29.6% (rental percentage) = $33,393 rental land

$345,000 x 29.6% (rental percentage) = $102,120 purchase price of rental portion (including land)

1. $102,120 plus $49,332 (improvements in 2014) = $151,452 total cost of rental portion that was "placed in service" in 2014.  When it asks for land, you will also enter the $33,393 of land here.  Enter 100% for business percentage of this "Asset" (assuming the improvement was only for the apartment).
2. Enter a second "Asset" for $17,107 that is "placed in service" in 2015.  Enter 100% for business percentage of this "Asset" (assuming the improvement was only for the apartment).
3. Enter a third "Asset" for $3928 that is "placed in service" in 2015.  Enter 100% for business percentage of this "Asset" (assuming the improvement was only for the apartment)

[KASinOR]

Wow, thanks so much!  I never would have figured that out by myself.  So grateful for your help.

[TaxGuyBill]

I'm glad I could help.

[TaxGuyBill]

I should also note that if any of those "improvement" values include things like appliances, carpet, or furniture, you should subtract those amounts from the improvement cost, and depreciate those as separate "Assets" (they are depreciated over 5 years, rather than 27.5 years).

[KASinOR]

Only one further question.  When I enter the "assets" for years 2015 and 2016, does the cost of the land remain the same, at $33,393, the value for 2014?

[TaxGuyBill]

No, leave the land out of those those.  Just enter the land in the ONE asset (the 'main' one that was placed in service in 2014).

[mlh]

Hello - I have a similar situation. I converted my garage to an apartment which was placed in service and has been rented out all of 2017. Expenses for the construction were occurred in 2015 and 2016 but were not deducted previously. How do I establish the value for depreciation? Do I need to enter the value of the primary residence or can I just enter the amount I spent for construction as the value for the new 'asset'?