Selling a rental prop after 30 yrs. I’ve depreciated some improvments, expensed others. Can the expensed work increase my basis Where I can find a document on this?

[HelenC12]

No, the items taken as an expense can't be used to increase your basis. You received a tax benefit when you expensed the items, from your income. To add them to your basis would be double dipping. 

For steps on how to enter the sale of your rental, see my answer. Scroll down to HelenC12. 

[sfshore2]

Thanks, I kind of knew this but just want to make sure. After 30 years I will pay a lot of taxes on the sale, but I also made a lot of money 

[sfshore2]

but can I ask a followup question - I have searched online for hours and can not find answer.  Ignoring improvements that I  depreciated and rounding off numbers to give an easy example. I bought a building 30 years ago for $100,000.  Ten years later I sold that building for $300,000 and did an approved exchange for a building that cost $500,000. Now another 20 years later I am selling that building for $800,000.  WHAT IS MY BASIS?  The $500,000 figure includes my initial investment of $100K plus $200K that I borrowed when I did the exchange. But It also includes $200K in appreciation on the first property.   Thanks

[AmyC]

For your example, here is what I get:

1. Your basis in the first building when you sold it plus the extra you paid to acquire the second building equals your basis.
2. So, building  $100,000 - $33,000 depreciation (approximately) =$67,000 basis + purchase and sales expenses = pretend $75,000 basis
3. Building 2- you did a 1031 exchange and the basis is in that paperwork. You should be using those numbers. That was long ago, so move forward.
4. Building 2 basis begins at:  building 1 + $200,000 purchase = $275,000
5. Then you depreciated 20 years, about $183,000.
6. Basis today: $275,000- $183,000 = $92,000

[sfshore2]

thanks for the response  Just to clarify  Building 2 basis begins at:  building 1 + $200,000 purchase = $275,000  this $200,000 is what I borrowed to buy building 2, not the $200,000 increase in value of building 1?  And the purchase price of building 2 is not relevant?  

[sfshore2]

I do have the 1031 exchange agreement from when I bought building 2.  The only $ amount in it is something called the "relinquished property equity".   The figure is almost twice the amount in your example . (But too low to include additional $ borrowed when I bought building 2).  Even if I dont subtract depreciation it is too high.  Is this the basis?  I can't get the numbers to work. The attorney who prepared this 20 years ago has since passed away. Thanks

[AmyC · Accepted solution]

Yes, I was using $200,000 as the price difference between the value of building 1 and 2 at the time of exchange thinking that was what you paid extra. Whatever you paid for building 2 plus the basis of building 1.

The appreciation of the first building was your good fortune and would have been taxed had you not done the 1031 exchange.

[sfshore2]

got it, I understand now, thanks for your help. this $ amt I found on the the 1031 agreement from 20 years called "relinquished property equity" , is not related to the basis, but I understand how to calculate the basis now .  thanks