Residential Rental

[TAX]

Client, an individual, move to a new house in Sep 2010. Starting Oct 1st, he was able to rent his old house (Old Primary residence).

What cost should be used for depreciation purposes?

(A) Original cost of house purchased (House was purchased in 2008)

(B) Market value as of Oct 1st?

[S T]

Basis on Residence to Rental

The basis for depreciation is either the cost plus improvements or the FMV whichever is lower. (less the land value) on the date of change.

Pub 551 - Page 10 has an example

Also, note the subsequent Sale Calculation

Sandy

[TAX]

The basis for depreciation is either the cost plus improvements or the FMV whichever is lower. (less the land value) on the date of change.

Pub 551 - Page 10 has an example

Also, note the subsequent Sale Calculation

Sandy

Thank you. It helped a lot. One question: I looked at "Sales Calculation" Why do you need to use formula for gain and loss (Both)? Do you use both basis and then see which one applies when you sale?

[Kram BergGold]

answer

If the property has declined in value at the start of the rental period from the origianl cost plus improvements then you use cost to figure gain and fair market value to figure loss.
Usually this results in no gain when you figre fo rgain and no loss when you figure for loss so it is a wash on Schedule D.