Rental property abroad - how do i calculate depreciation?

zlyvyrostekhugo — Wed, 19 Feb 2025 14:16:21 GMT

1/ What is the cost basis? How do i get it?

2/ What if there is substantial time between when the property was purchased and put to service for rent (like 20 years) ? Cost of real estate is dramatically different...

3/ How do i decouple land value and building value abroad, under block house with 48 apartments?

4/ what exchange rate is used?

5/ Do I HAVE TO calculate and use depreciation or can i simply tax income from the property less the expenses (utilities and insurance)?

Re: Rental property abroad - how do i calculate depreciation?

pk — Wed, 19 Feb 2025 17:23:00 GMT

@zlyvyrostekhugo ,

Which country is the property in ? Are you a US person ( citizen/GreenCard/Resident for Tax Purposes ) now? When did you enter US and with which visa ?

Answers to your questions are in italics

1/ What is the cost basis? How do i get it? When you convert a property from personal use ( main home or second home etc.), the basis for purposes of gain and depreciation is usually the lower of FMV ( Fair Market Value at conversion OR original acquisition cost plus cost of any improvements. Based on your comment about gain in value of real-estate in that area, it is probably the latter -- your acquisition cost plus cost of improvements.

2/ What if there is substantial time between when the property was purchased and put to service for rent (like 20 years) ? Cost of real estate is dramatically different... answered above # 1

3/ How do i decouple land value and building value abroad, under block house with 48 apartments? Even in case of high rises there is probably an allocated value of the land -- perhaps you have to query the local administration --- note that this is based on the basis ( i.e. as discussed above ) and a percentage of that. In the USA , and absent any property tax records from the past, one often would use a percentage like 1/3 of land and 2/3 for the building. A realtor in the country probably can get a reasonable figure.

4/ what exchange rate is used? For basis it should be at the time of acquisition or at the time of conversion ( depending on which is your basis ). The source of the exchange rate must be something that is published and/or recognized. US treasury has average annual rates for past years, as does Yahoo financial . Note that in general you must use similar time domain rates i.e. dollar of the day , or average of month, quarter , year etc. through out. That way you can sustain a challenge ( if so required ). Keep your records so you can show justification of the rate.

5/ Do I HAVE TO calculate and use depreciation or can i simply tax income from the property less the expenses (utilities and insurance)? Simple answer is yes. Note that when you actually dispose off a depreciable asset, the accumulated allowable depreciation reduces your basis ( for gain computation ) regardless of whether you chose to recognize the depreciation or not. Thus it is to your advantage to recognize the depreciation.

TurboTax will do all the computations for you while you prepare Schedule-E ( recognizing your gross rental income and expenses ). All you need to do is provide the details it requires for the computation.

In my personal opinion , ( I have no financial or otherwise connection/benefit from Intuit / TurboTax ), I would use Windows download of Home & Business to prepare and file the return. I say this because this product covers the most complex scenarios and because all the data stays on my machine ( for future use if need be ). Of course , the con is that it is also the most expensive in the product line-up.

Please answer my questions

Is there more I can do for you ?

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Rental property abroad - how do i calculate depreciation?

Re: Rental property abroad - how do i calculate depreciation?