both numbers may mean nothing when it comes to taxes. The proper answer is on the date of closing the value of the land vs the value of the building. Then add prorated capitalizable closing costs.
generally, with few exceptions, nothing that happens in future years changes this. exceptions might be tearing down the building. then depreciation stops and the remaining cost goes to land. Improvements would add to depreciable cost but are separate and apart from the original costs.
- Suppose I sell the house at $1M in 27.5 years later. Since carried over loss is equal to depreciation over 27.5 years, would my capital gain be just $1M - $750K = $250K?
under current tax law:
if the property is disposed of in a fully taxable transaction (IRC 1031 is not used) and assuming no aggregation any suspended loss is allowed. depreciation allowed or allowable is first recaptured as section 1250 gain which as of this tax year is tax at a federal rate that does not exceed 25%. Currently there is also a Net Investment Income Tax of 3.8% that set to expire at the end of 2025. But who knows what Congress will do. Whether this applies depends on your modified adjusted gross income and filing status.
so if the net selling price (after selling expenses) is $1,000,000 the gain is $850,000 (building is fully depreciated and assuming the land's tax basis is $150,000). of the $850,000 $600,000 is taxed as section 1250 gain $250,000 is taxed as long-term capital gain
as a side note it's unlikely that the loss will remain the same every year. rents should be going up over 27+ years and interest expense should be going down. the principal paid on the mortgage is not deductible.
