I have a client that is purchasing a building for his business through a contract for deed. When can the client begin depreciating the building? After it is paid in full, or while payments are being made?
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I believe
depreciation begins when the building is placed in service based on LCMV. The "interest" on the CD would be expensed annually. -
I believe
It is based on the historic costs (original costs).Comment
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Contract for deed
Although the deed is not issued, it should still qualify to be depreciated. I sold a house with a contract for deed and the purchaser was able to qualify for a homestead exemption for his Real Property tax.Comment
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"Contract for Deed" is an installment sale IIRC
When a sale is "by contract for deed" the tax law considers it to be a sale, as long as all the "benefits and burdens" of the property have been transferred to the purchaser. In this case, it's *only* the title to the property that hasn't transferred, and that's not enough - according to the IRS - to treat the transaction as anything other than a sale. The installment method of taking the gain from the sale into account doesn't change that result, either. The purchaser should be using his purchase price - whether paid or not - as the tax basis of the property for all tax purposes, such as depreciation.Comment
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