what determines the top line amount for depreciation

4 Replies

What determines the amount that can be depreciated in a property?  (tax assessment, loan amount or some other factor)

Your Cost of the property.....what you paid for it, plus some closing costs, and repair costs to get it ready for rent, if not already rented.

Brandon hall recently did a blog that was somewhat about this (BARRRR). Costs up to get rent ready can be depreciated. After rent ready, capital improvements can be added to basis to depreciate, operating costs are expensed in year incurred.

Check out the article for some tips on that. But the above post is right: purchase price, less allotment for land cost, plus closing costs and costs to make rent ready. Then divide by 27.5 to get per year amount.

As always, ask a tax pro that knows their stuff. Maybe @Steven Hamilton II can confirm.

Originally posted by @Wayne Brooks :

Your Cost of the property.....what you paid for it, plus some closing costs, and repair costs to get it ready for rent, if not already rented.

You separate out the cost of the land. Only the building is depreciated.

Additionally, if the FMV of the property is less than what you paid for it, then the depreciable basis is based on the FMV at the time it is placed in service as a rental property. There is a little latitude at this point. If you have both an appraisal and a tax assessment of value, use the one that you prefer. The IRS will accept either as a reasonable method for establishing basis.

Thank you all for taking the time to answer my question.

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