Schedule E 100% property interest acquired in separate transactions

[atxlandlord]

Hi. Several years ago I acquired a single family home as a rental property with a co-owner. Each of us had 50% interest in the property and as such we were splitting expenses and income and accordingly recording this on our respective Schedule E forms. Last year, I bought my co-owner's 50% interest in this property in a refinance with cash-out transaction (ie, we agreed on a sale price for his 50% interest) and at closing he got paid the agreed upon sale price less his share of property taxes, closing costs, etc.

Now onto my question. How do I record this transaction on Schedule E? I now own 100% of this property, but each half has it's own cost basis (initial cost basis for the first 50%, and new cost basis for the other 50% I got last year). Obviously, I don't want to record this as a 50% sale + 100% purchase since I did not sell the initial 50%... Thanks!

[Anonymous_]

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@atxlandlord wrote:

I now own 100% of this property, but each half has it's own cost basis....

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There is really no way around that as there is no way to combine them.

Although the first 50% has the same recovery period as the following 50%, they each have a different placed-in-service date and cost basis so they have to be handled separately.

Regardless, you only have to separate them for the purposes of calculating depreciation and can actually enter the total (100%) as a deduction on Schedule E - as well as 100% for all income/expenses.