BRRRR Basis Head Scratcher

Tax, SDIRAs & Cost Segregation
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BRRRR Basis Head Scratcher

Jason Rogers
Jackson, MI · Member since 2016 · 36 posts · 8 votes

Hello BP Community,

I am trying to get my P&L put together and I stumbled when trying to calculate the basis for depreciation. 

Purchase price = $24k

Rehab Cost = $24k

ARV= $65k

My understanding is that the basis for the property would be $48k- Land Value= Basis.

I went to the county site to get the land value for the property and it says $50k! So my basis is $-2,000?!!! I'd appreciate any insight as to how to get an actual basis for this and if I need to get this cleared up with the county.  Thanks in advance!

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  • Ashish AcharyaBusiness Member
    CPA, CFP®, PFS · FL · Member since 2017 · 5k+ posts · 3k+ votes
    6y
    Originally posted by @Jason Rogers:

    Hello BP Community,

    I am trying to get my P&L put together and I stumbled when trying to calculate the basis for depreciation. 

    Purchase price = $24k

    Rehab Cost = $24k

    ARV= $65k

    My understanding is that the basis for the property would be $48k- Land Value= Basis.

    I went to the county site to get the land value for the property and it says $50k! So my basis is $-2,000?!!! I'd appreciate any insight as to how to get an actual basis for this and if I need to get this cleared up with the county.  Thanks in advance!

     Ues the county ratio of land to total, not the actual value. With this range of the house, the 10% would normally would be a land value for your purchase. 

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  • Eamonn McElroy
    Accountant · Atlanta, GA · Member since 2015 · 1k+ posts · 1k+ votes
    6y

    @Jason Rogers

    We are assuming you are curious about tax basis.  There are many types of bases out there...

    There are many ways to allocate purchase price between various assets classes, each with their pros and cons.  @Ashish Acharya mentions a practical one.

    If the $24k in rehab was paid and completed after you acquired the property, generally it would not be capitalizable into land.

    Ask your tax advisor for the specific answer.

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  • Jason Rogers
    OP
    Jackson, MI · Member since 2016 · 36 posts · 8 votes
    6y

    Thanks gentlemen! I am just trying to whip up a quick P&L for a refi and I had a simple answer on my apartment building as the numbers made sense, they were roughly 10% of the property value. This one was twice what I paid for the house! Thanks for the input. I'll dig in some more before doing the taxes!

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