Building Basis - Improvements made to rental property
I bought a 2-floor building in 2010 for $200,000. I live on the top floor. Currently there is a tenant on the 1st floor. I only plan to live in building for 5 years, and rent out the whole building for another 10 years.
I made improvements of $40,000 to my floor in 2010. There was a tenant on the first floor. Do I add the $40,000 to the cost basis when I sell the property? Or can I add $40,000 to the cost basis and depreciate the new basis? I would like to get the most depreciation now. The whole building will eventually be rental property when I move out in 5 years. Is this incorrect since I live on top floor where I made the improvements?
Purchase price: $200,000
Less: Land $25,000
Building Basis: $175,000
Add: Improvements: $40,000
Adjusted Basis: $215,000
Rental Portion: 50%
Adjusted Basis: $107,500 - To form 4562?
In 2011, I made another $20,000 in improvements to the renter's portion of the building. The renter moved in June 2011. Can I add the improvements to the $107,500 adjusted basis from 2010 (assuming 2010 basis is calculated correctly) and depreciate this new amount for 2011?
2010 Adjusted basis: $107,500
2011 Improvements: $20,000
Adjusted Basis: $137,500 - To form 4562?