Tax Basis for Depreciation - Accountant?

3 Replies

This is the first year I changed my former home into a rental. I changed it May 1, and have done a little updating prior to tenants moving in. I've always done my own taxes, but I've never needed additional schedules just the simple 1040 forms. Should I consider outsourcing this or is this something I could handle myself? I did some reading and it seems like I can add the improvements to the tax basis, not deduct them. So would this be correct for this year:

Property Basis

$99,000

+ (window)

+ (roof)

+ (paint)

+ (water heater)

- (energy credit)

----------------

(New Basis)/27.5=(annual depreciation)

(Annual depreciation)*(.75)

That's my understanding, please let me know if this is correct. I'd also like advice on whether I should try to continue to file my own taxes or find an accountant. I am actually hoping to go to school for accounting in the spring because it's interesting to me, but that's no help now. Thanks!

@Derek Johnson It depends upon what you mean by those things.  For example, replacing a roof would likely be a capital improvement that is added to your basis.  Repairing a roof is more likely to be a deductible expense.  Painting is also likely to be an expense, but if it is done as part of a large rehab project, it might be a capital improvement.  In some cases, it may be possible to depreciate certain items (like appliances or carpet) on a schedule separate from the 27.5 year schedule for the property (make sure you're excluding the value of the land from your basis as well).  As you can see, it can be tricky.  (This is not tax advice or legal advice, and you should consult with a professional tax adviser.)

Looks like you have a good start. Not sure how you came up with the $99k. Start with the HUD-1 you received and go from there.

Did you break out land value vs building?

Look in the link below for cost basis and adjusted cost basis to get a better formula. Always best to go to the source. 

http://www.irs.gov/publications/p527/ch02.html#en_...

Nope I forgot about the land not being depreciable. The $99k was our purchase price! I may try to figure it out and just come back here if I need any advice around tax time. There are just a lot of variables this year since it wasn't a rental until May.

Join the Largest Real Estate Investing Community

Basic membership is free, forever.

By signing up, you indicate that you agree to the BiggerPockets Terms & Conditions.