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    Adjusted Basis

    I have client who purchased rental property in1991 for $25,000. She has depreciated the property ever since. She made improvements of 60,000 over the years, but never depreciated them. She sold the rental for $45,000. Can I include the improvements as part of her basis even through she never depreciated them?

    #2
    What you can do is in the year of sale, do a Sec 481a adjustment for the accumulated depreciation not taken in prior years for the $ 60,000 improvement, then calculate the sale on Form 4797 with the cumulative figures.
    Depreciation recapture is on depreciation "allowed or allowable" during the life of the asset.
    I suggest also that you complete Form 3115 explaining the recalculation of depreciation.
    Last edited by Uncle Sam; 04-30-2019, 03:10 PM.
    Uncle Sam, CPA, EA. ARA, NTPI Fellow

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      #3
      As Uncle Sam said, yes, the $60,000 is added to Basis *BUT* the depreciation that COULD have been claim reduces Basis.

      You can 'catch up' on the missed depreciation by filing Form 3115.


      As a side note, I find it interesting that there were $60,000 of improvements, but it was sold for only $45,000. In the event that there is a loss, you should check if it was a related party sale or not.

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        #4
        I'd say it's more likely than not that the "improvements" were classified as repairs and expensed in the years of purchase.

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