cost basis for rental property

2 Replies

Hi all, 

Does anyone know if we are allowed to change the cost basis for rental property? 2013 was the first year I placed a primary residence into a rental and according to IRS rule the cost basis was the lesser of fair market value or purchase price. I opted for the fair market value because the value had declined compared to the purchase price. 

This year, the value has rebounded and exceeded the purchase price, does anyone know if we can adjust it back to the purchase price for depreciation purpose? 

You can not change the original cost basis. It is calculated at the time the property became an investment property. If going back and changing it every time the value fluctuated was an option it would be done every year and the whole system would be turned upside down (well not likely). The value is going to go up and down every year. If you do improvements you increase your cost basis. Depreciation of the asset over time will reduce the cost basis. You could make an argument if you used the wrong figure for the basis possibly but that is opening you up for an audit possibly (though not likely). If you have an accountant filing your taxes for you he will likely advise against trying to make any amendments. 

thanks. i think the value i entered last year was too low but that probably means i'd have to go back and amend it.