Inherited Rental Real Estate Depreciation Basis

[Oma]

On the appraisal of inherited rental real estate, "Sales Comparison Approach $128,000" and "Income Approach $206,800." Which do I use for Depreciation Basis?

[JON]

FMV is

what a willing seller and a willing buyer would be WILLING to accept and give, and they both are really smart about it. Watch out for the value of land and the items of property in the house.

[BOB W]

On the appraisal of inherited rental real estate, "Sales Comparison Approach $128,000" and "Income Approach $206,800." Which do I use for Depreciation Basis?

Inherited rental property uses the value on the Estate Tax Return for basis. All other issues are irrelivant.

[S T]

However

a form 706 is not always required and/or filed - So the Executor should obtain an appraisal as close to date of death as possible. It would be needed for a 706 form and can be used if a 706 form is not filed. It would seem an appraisal would also be required for Probate if needed.

It seems what the OP mentioned is possibly a "Realtor Evaluation".

Sandy

[Oma]

Inherited Rental Real Estate Depreciation Basis

Form 706 is not required, estate tax return was not filed. An appraisal of the property was done- on the APPRAISAL of inherited rental real estate, "Sales Comparison Approach $128,000" and "Income Approach $206,800." Which do I use for Depreciation Basis? I have the value of the land and the contents, but am questioning which value to use for depreciation.

[BOB W]

If I had to guess, and it is only a guess, I would use the higher figure. Since this property has been rental for a long time (?) it probably would have been valued in the estate as a rental real estate business, thus having greater value than residential. But just because it is a house that is rented out does not move it into valuable rental property. Now if it was a 2 or 3 unit house, that may be a different story.

[Burke]

I would inquire of the appraiser why these two figures are so disparate. Did he use comparable residential property (non-rental) as the basis for "Sales Comparison" approach? Income Approach factors in potential rental income for a period into the future which should be a fairly legitimate way to determine actual FMV if the property were to remain rental property. Also, what was declared for probate?

[taxea]

Form 706 is not required, estate tax return was not filed. An appraisal of the property was done- on the APPRAISAL of inherited rental real estate, "Sales Comparison Approach $128,000" and "Income Approach $206,800." Which do I use for Depreciation Basis? I have the value of the land and the contents, but am questioning which value to use for depreciation.

I would ask your client to determine from whomever he got this quote to give him a FMV amount at time of death of the person he inherited the property from.

[S T]

Appraisal

Oma, this might assist you - The article gives methods to Determine Market Value

http://thismatter.com/money/real-estate/real-estate-appraisal.htm

url]http://en.wikipedia.org/wiki/Real_estate_appraisal[/url]

It seems the Income Approach is more commonly used for commercial real estate and businesses, than it would be for a residential rental. Income Approach appraisal is also anticipating the value based on the property generating a particular income. The property might not generate the income that is used in the appraisal.

Sandy