Rental property depreciation confusion.

[bjl01]

Hello, I am. Relatively new tax preparer (5yrs)

I have a customer who purchased a rental property 3 family in 2006, overall cost was about 390k and paid cash for the property with a home equity lone on his primary property.

Understanding we back out land cost. I can’t understand why the original preparer booked the asset at a cost of 158k, looking at this years tax bill for the property the land value is 118k. I’m just trying to understand why the numbers may be this way. I can’t find anything in the original return to justify the 158k vs what I would have imagined to be more in the 300k range.

Does his using the equity in his current house come into play with the valuation to base depreciation on?

thank you for the help

Bob

[Lion]

Is he living in one of the three units? And, if so, are they all the same size?

Do you know how your local tax bills are calculated. (I think my area uses about 70% of the estimated FMV which can come from a revaluation as long ago as 10 years. Also, in my area, the land is worth a LOT more than most buildings.) Look at all the closing documents to see if the land was broken out, or the insurance policy. Or, look up on your local web site.

[bjl01]

Hi Lion,

Thanks for the response, client never lived in the building.

I’ll have to do some digging to find out the ratio, it is possible back then the land was valued higher than the building. Hopefully he still has the hud I didn’t have much luck with him asking for the tax bill from the original purchase.

[Lion]

Does the depreciation schedule have a line for land and a line for building? If not, when you work it out, you'll want to add it. It'll save you time when your client sells. (Or, save the next preparer from going through what you are!!)