Splitting Depreciation on Residential. Rental

[bbrownatl]

I have two clients who own a residental rental property 50/50. The property had a FMV of $600K upon being placed in service this past August 2007. How do you split the depreciation? Have each file a form 4562 with the value of $300K for each and thus have their 50% portion flow to Schedule E? Any other ideas. Only other thought was to have the full amount on one but where on the Sch E would you indicate the "Portion recorded by taxpayer xxx-xx-xxxx.

Thanks again for the insight.

[S T]

Not sure

Not sure if your questions is a software question or a tax question.

My software allows me to indicate 50% and then I enter 100% figures including depreciation flow through.

Tax answer is that each party would be allowed 50% of the total of the value of the property, of couse separating land to bldg ratios. So if the bldg/improvements are $600K (purchase price and improvements) it would be $300K to each party reported on Schedule E.

If the total cost of the rental property is $600K you would need to reduce by the land allocation , then divide by 50% and that would be the depreciable amount reported on each Schedule E.

Sandy

[Davc]

Unless the property's tax basis is > 600K, FMV is not used to determine depreciable basis.

[Lion]

Partnership?

Did they form a partnership? Who owns the property? Who received the rent? Who paid the bills? Was it always both, and was it always 50/50?

[bbrownatl]

Cost or FMV at time of conversion?

This was the primary residence of this unmarried couple. Both are on note and deed.

My question is that the depreciation is calculated based on the FMV of the structure at the date of conversion.to a rental property. Right? Other method would be the original purchase price which is obvously less given appreciation of the property over time. In this case, the FMV of the structure is $480K and the land at $120K.

Thanks again for your insight.

[Gretel]

It's the lower of FMV or costs you use for depreciation.

[Jesse]

Agree with Gabriele. Although often the client disagrees w/ this - it is what it is!

I have a client that made his garage into a workshop. He built this over 30 years ago and I am going round and round w/ him because he wants to depeiciate at FMV, or at least add in a cost factor for his work, after all his labor is worth something. But it just doesn't work that way.