anyone who is a landlord, could you help, please with tax info

susie100April 8, 2009

Does anyone who owns rental property know how to figure the depreciation on a rental property? This is the amount that would appear on Schedule E, Supplemental Income & Loss, Line 20. If you can help, bless you!

Susan

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mariend

You should talk to a CPA tax consulant as each situation is difference. It is not just the depreciation, it is what you have spent on the property and other information. Also if and when you sell you could end up with a big Capital gains amount to pay--we did.

    Bookmark   April 8, 2009 at 4:19PM
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nutbunch

It's not that difficult.

Look at your property tax bill, it should brek up the difference between the rental house and the Land.

The Land value is NOT subject to depreciation.

The building value is depreciated on Form 4562 for 27.5 years

So for example You buy house for $220,000. Property tax say the assessed value of house is $200,000.

If you started renting on January 1 for the whole year, your depreciation would be

$200,000/27.5 =$7,273

If you started renting any other time then you'd have to times the above by # days rented/365.

Ta Da

    Bookmark   April 8, 2009 at 5:09PM
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susie100

Thank you, Nutbunch. I actually did figure it out, but thanks for the reinforcement. I've written it down for next year.
Susan

    Bookmark   April 8, 2009 at 5:38PM
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brickeyee

Property tax assessments are NOT a good way to establish a basis for depreciation.

    Bookmark   April 14, 2009 at 4:11PM
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sadiesmom

Brickeye,

I was wondering about that same thing.....I'm getting ready to submit our first tax return since becoming a landlord, and our tax advisor used the figure on the assessment, which I am suspicious of, since our assessment is 100K under market value (very common in my area with the older homes).

What do you think is the best way to establish a basis?

Thanks,
Sadiesmom

    Bookmark   April 14, 2009 at 5:05PM
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nutbunch

Sorry about the property tax values. I forget not everyone here is in the great state of California with their Prop 13 values. Which means the assessed value when you get your bill IS the price you paid for the property, with a land value assigned by the county.

I guess in other states that don't due that, then you could take the ratio on the assessment of the land value to total assessed value then take that same ratio of the price you paid for the property to get the land value.

Short of paying for an appraiser to issue a report of the FMV of land vs. property. The IRS just wants you to take out a fair value for land, they don't intend for that to be cost prohibited.

    Bookmark   April 14, 2009 at 6:50PM
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susanlynn2012

The total cost you paid for the rental property (per the closing settlement statement: cost plus closing costs other than real estate taxes, insurance and mortgage interest .... i.e., add in the attorney fees, title insurance, wire transfer fees, etc.) plus all improvements is your cost basis. Then use the most current tax bill's land value percentage to total cost on that bill to allocate part of this cost to land to deduct from the total cost (308,200 Land divided by 460,000 total assessment = 67% value of land... in NJ our land values are higher than the building so I was using a NJ example). That will give you the building's cost to depreciate over 27.5 years if you are renting the place as a residential rental or 39 years if you are renting the place as a commercial rental. For example if total costs including improvements is $600,000 then $600,000 - $402,000 the land's 67% value = $198,000 to depreciate ove 27.5 years if the rental is to a residential tenant. In NJ, the tax bill's assessment is always lower than the actual price but the percentage of land vs. building is accurate. Hope this makes sense since I have been living with only a few hours of sleep. I will check after my deadline if there are any more questions. Feel free to email me but don't expect a response until after 4-15-09 which will only help you if you are on extension.

I better get back to these extensions. I needed a break and was hoping to see some more pictures of hardwood floors. :)

    Bookmark   April 14, 2009 at 11:54PM
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brickeyee

lynn2006 gives a very common method that passed muster with both accountants and tax lawyers over the years.

    Bookmark   April 15, 2009 at 3:38PM
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susanlynn2012

Thank you brickeyee for agreeing with me on my method which really was what others were explaining but I tried to give more detail.

I finished my extensions and only had to wait in line forever for one return that had to go out today and could not be E-Filed. Tomorrow I have to find out why my car's engine light turned on so I have to put off looking for my wood floor for a few more days.

    Bookmark   April 16, 2009 at 12:47AM
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brickeyee

I complained to Turbo Tax about using the tax appraisal as a basis for depreciation a few years ago.

I have not noticed if they corrected it.

    Bookmark   April 16, 2009 at 5:04PM
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jlhug

Lynn gave a great explanation except for one thing which may or may not apply in the current real esate market.

Your basis for depreciation for property converted from personal use to rental property is the lower of your cost (original basis plus permanent improvements) or the fair market value of the property on the day it becomes available for rent.

    Bookmark   April 16, 2009 at 8:18PM
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brickeyee

"...lower of your cost (original basis plus permanent improvements) or the fair market value of the property on the day it becomes available for rent."

The issue is how one divides the value between non-deppreciable land and depreciable portions on the basis that applies.

A real estate tax appraisal at least gives a rational basis for separating the portions and is used as described.

There have been issues with property tax assessments in built up areas with very few vacant lots available.

Fairfax County, Virginia just had to restate a bunch of assessments since they tried to base the land portion on the price of a few vacant lot sales.

The vacant lots sell at a real premium, since the only other alternative is to do a 'knock down' to get a vacant lot.

The value of the existing house is then part of the lot cost.

    Bookmark   April 16, 2009 at 8:31PM
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susanlynn2012

jlhug, Thanks for correcting this which I corrected in a long email to someone who wrote to me before getting back to my extensions on the 15th. I was just so tired and trying to type as fast as I could so I could get back to work. I am still so drained but I could not sleep so I was listening to Susan Boyle Sing and checking this forum out. Now I am ready for sleep.

It is the the lower of fair market value or cost and it used to be that cost was less but in today's market, the current market price could be less. My home has increased in value but it is worth so much less than 3 years ago which saddens me but it is still worth more than the cost 12 years ago when I purchased it.

I better get sleep since I am not making sense from living on 2 to 3 hours of sleep a night and amazingly doing OK with the adrenaline going until I crashed today.

    Bookmark   April 17, 2009 at 2:19AM
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jlhug

Lynn, I feel your pain or lack of sleep. I'm an EA and am thrilled that this tax season is over. It was one of the busiest we've ever had.

    Bookmark   April 17, 2009 at 12:10PM
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susanlynn2012

jlhug, I am glad you can understand since you are an enrolled agent. I am a CPA and usually I keep this to myself and only discuss decorating to remain anonymous but lately I have been feeling like I want to give back to those who have helped me with choosing paint colors, furniture, hardwood flooring, etc.

I wish tax season was over but I have so many extensions as well as the sales tax deadline due on Monday and the payroll deadline due at the end of April. I guess I should be glad I have work and I enjoy my job but I need a vacation so bad that I have no time to take due to responsibilities.

My employee had quit in the middle of tax season, so I had to do everything myself.

Today I am still burnt out but I have to push myself to get the sales tax deadline done and hopefully I will soon be refreshed again to do the extensions that were missing information.

    Bookmark   April 18, 2009 at 11:27AM
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