Calculating cost basis for multi-unit real estate purchase

I purchased multiple units of differing types in one transaction. Given they are different types, doing a straight (Purchase Price / Square Footage) calculation doesn't accurately reflect comparable sales for each unit type. As an example:

Unit 1, 350 sf, comparable sales at the time of purchase $45k

Unit 2, 650 sf, comparable sales at the time of purchase $55k

Purchased together for $100k

In what ways can I assign the cost basis for tax purposes?

293

Expert Alumni

Jan 26, 2022 4:01:56 PM

Although basis is usually apportioned by square footage, you can use the comparable values if you think it is more accurate.

Unit 1 would be $45,000 and unit 2 would be $55,000. Just make sure you apportion the closing costs the same way, so unit 1 is 45% and unit 2 is 55%.

The IRS allows you to use any reasonable method to allocate basis, but you need to make sure your are consistent.

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Calculating cost basis for multi-unit real estate purchase