When entering Fair Market Value for a rental, is it entered as a monthly or annual figure?

[PatriciaV · Accepted solution]

The Fair Market Value under rental income is a monthly number. Basically you're saying the monthly rent you charge is typical for the area where your rental property is located.

[revised]

There is another type of FMV related to rental property, which is used to determine the depreciable basis when you convert a property from personal use to a rental. In this case, the Cost of the property is the lesser of:

• The property's Fair Market Value (the amount a willing buyer would pay and a willing seller would accept when neither is compelled to buy or sell - an "arm's length" transaction) OR
• Your basis in the asset (how much you've paid for it, including whatever you spent to acquire it) at the time you started using it for business.

If you need an estimate of Fair Market Value for your property, check with a local Realtor (best choice) or look up similar properties in your area on Zillow.com (may be inflated).

[mjdanis]

Sorry. Still unclear.   For the FMV of my rental property, do I input the monthly rent being cheaters OR do I input the value of my property if I sold its.

[PatriciaV]

Unless you are answering a question about rental income, Fair Market Value (FMV) is always the total value of your property if it was listed for sale.

[mylikuliku]

@TurboTaxPatriciaV For the FMV of rental property, is it OK to look at the assessed value from the Tax Bill of that particular year? Or we have to look at Zillow/Redfin for estimate price for sales?

[PatriciaV]

The assessed value assigned by your local tax appraiser may be lower than the actual price a willing buying would pay for your property. The best source for FMV would be a local Realtor. The user-contributed values on internet websites tend to be inflated. Your last resort may be reviewing recent sales in your area, if you can access this information from Realtor.com or similar MLS websites.

[mylikuliku1]

@TurboTaxPatriciaV So, the FMV of the rental property should be the fair market price when the house available for rent that time (not when the house was purchased), correct?

[PatriciaV]

Yes, on the date the property was listed for rent.

[Anonymous]

@PatriciaV  - this thread has been very helpful.  Based on what I am reading, the fair market value should include the land value as it's what would be listed for sale. Is that right? 

Thank you, 

[DMarkM1]

if you are listing assets for depreciation the fair market value for the depreciable property would not include the land; only the improvements (home/buildings/etc).

[Ashantijct]

So to be clear, 

For the question that states "enter the fair market value of your rental property on the date it was ready and available to rent" - this is asking for the MONTHLY rental price, right? NOT the value of the property based on Zillow. RIGHT?

[Carl]

Are you being asked for Fair Market Value of the property? Or the Fair Market *RENTAL* Value of the property.

It's more common to be asked for the Fair Market Value of the property. The FMV is based on the sale price if you were to sell the property. The FMV in that case is "what the buyer is willing to pay".

When converting a property from personal use to a rental, the property is depreciated on the LESSER value of what you paid for it, or it's FMV on the date it was placed in service. Nowadays, it is more common for the lesser value to be what you paid for it.

If you purchased the property in 2019 and started renting it out having never lived in it for one single day as your primary residence, 2nd home, vacation home or any other type of "personal pleasure" use, then the FMV of the property is exactly the same as what you paid for it.

Rental Property Dates & Numbers That Matter.

Date of Conversion - If this was your primary residence or 2^nd home before, then this date is the day AFTER you moved out.
In Service Date - This is the date a renter "could" have moved in. Usually, this date is the day you put the FOR RENT sign in the front yard.
Number of days Rented - the day count for this starts from the first day a renter "could" have moved in. That should be your "in service" date if you were asked for that. Vacant periods between renters count also PROVIDED you did not live in the house for one single day during said period of vacancy.
Days of Personal Use - This number will be a big fat ZERO. Read the screen. It's asking for the number of days you lived in the property AFTER you converted it to a rental. I seriously doubt (though it is possible) that you lived in the house (or space, if renting a part of your home) as your primary residence or 2nd home, after you converted it to a rental.
Business Use Percentage. 100%. I'll put that in words so there's no doubt I didn't make a typo here. One Hundred Percent. After you converted this property or space to rental use, it was one hundred percent business use. What you used it for prior to the date of conversion doesn't count.

RENTAL PROPERTY ASSETS, MAINTENANCE/CLEANING/REPAIRS DEFINED

Property Improvement.

Property improvements are expenses you incur that add value to the property. Expenses for this are entered in the Assets/Depreciation section and depreciated over time. Property improvements can be done at any time after your initial purchase of the property. It does not matter if it was your residence or a rental at the time of the improvement. It still adds value to the property.

To be classified as a property improvement, two criteria must be met:

1) The improvement must become "a material part of" the property. For example, remodeling the bathroom, new cabinets or appliances in the kitchen. New carpet. Replacing that old Central Air unit.

2) The improvement must add "real" value to the property. In other words, when  the property is appraised by a qualified, certified, licensed property appraiser, he will appraise it at a higher value, than he would have without the improvements.

Cleaning & Maintenance

Those expenses incurred to maintain the rental property and it's assets in the useable condition the property and/or asset was designed and intended for. Routine cleaning and maintenance expenses are only deductible if they are incurred while the property is classified as a rental. Cleaning and maintenance expenses incurred in the process of preparing the property for rent are not deductible.

Repair

Those expenses incurred to return the property or it's assets to the same useable condition they were in, prior to the event that caused the property or asset to be unusable. Repair expenses incurred are only deductible if incurred while the property is classified as a rental. Repair costs incurred in the process of preparing the property for rent are not deductible.

Additional clarifications: Painting a room does not qualify as a property improvement. While the paint does become “a material part of” the property, from the perspective of a property appraiser, it doesn’t add “real value” to the property.

However, when you do something like convert the garage into a 3^rd bedroom for example, making a  2 bedroom house into a 3 bedroom house adds “real value”. Of course, when you convert the garage to a bedroom, you’re going to paint it. But you will include the cost of painting as a part of the property improvement – not an expense separate from it.